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Let's take the minimum wage. Let's say Tom wants to go work for Whole Foods Market, and Tom is willing to work for Whole Foods for, you know, $10 an hour. And we want to hire Tom, and we think Tom is worth about $10 an hour, so we come together, and Tom's winning. We're not forcing him to work there. He's getting benefits. He's getting opportunities to advance, learn new skills, and make more money in the future. We're gaining from it because we think he's going to be a good employee, and we think $10 is a fair wage. However, the government may not let us do that. They may say, "You can't pay Tom $10 an hour, because we're going to set a minimum wage of $15 an hour." So the government's basically saying, "We know better what's [good] for Tom, and we know better what's [good] for you, and we're not gonna let you guys freely come together and do voluntary exchange."
reason: The argument is that especially in an era where there's high unemployment and low labor-force participation, it's a buyer's market. Tom wants to work for $10, but you could probably get him for $5 or $6. So the argument is that, somebody's got to look out for Tom.
Mackey: Well, first of all, I think Tom can look out for himself. But [second], that's basically a myth. Wages in a marketplace are determined by productivity. Why should we pay Tom even $10 an hour? If we can control the wages, then why don't we just pay him 10 cents an hour? Why not? Because Tom could go get a job someplace else that would pay him better. Wages are determined through competitive marketplace dynamics. And wages will settle at the marginal level of productivity, meaning we might like to pay Tom less, but Tom's not willing to work for less, and he can get a job down the street that pays him what he thinks he's worth. So the competition between employers sets wages.
When the government sets it, it's inevitably going to screw it up. It's going to set them too high, and so a company like Whole Foods Market—let's say they say the minimum wage is $15, but Tom's only worth $10 to us. Well, what we'll do is we'll restructure our marketplace so that we'll provide less service. We're actually a very high-service supermarket, but if they make service too expensive, so our customers aren't willing to pay for it, then the rational, logical thing to do would be to cut back. Do more self-service, make people queue up in lines longer, so we can keep our labor costs under control, so we can be competitive in the marketplace.
reason: What are some of the other, less obvious regulations that really hinder the ability of business and individuals to come together, or to be flexible and innovative?
Mackey: There are hundreds of them, and most of them, as you say, are hidden. One, perhaps, that's not so hidden is Obamacare. Again, it's determining, rather than letting the marketplace determine, health care in a competitive format. They're basically saying, "You must cover this."
Let's say they mandate that you must cover in vitro fertilization, which as far as I know is not really an illness or a health condition, but [let's say] some lobbyist somewhere can jam that through. When they jammed it through in Massachusetts and forced us to cover that, we were paying an extra $750 a person for health insurance, and there's no free lunch. So if we're paying an extra $750 to cover everybody in the workplace so they can get in vitro fertilization—so someone, sometime can get it—well, the result is they're going to get $750 less in [other forms of] compensation. I think this is what people don't understand: If you mandate certain benefits then the cash compensation's going to be less. Oftentimes, you'll see studies that show that "real wages" are stuck. Well, real wages and benefits aren't stuck, but you don't necessarily see that.
reason: So it might be that the pay is stuck, but the overall compensation, the fringe benefits, etc.—
Mackey: Exactly. They're forcing us to cover more things. If you're forced to give paid time off, if you're forced to give maternity leave, you're forced to give paternity leave, you must give this many vacation days—well, those are all costs to the business. They sound good, but there's no free lunch there. So if they're raising our costs through benefits, then necessarily total cash compensation must be reduced. Then they say, "You're going to have to pay this much in cash compensation." Again, there's no free lunch. So we'll either have to cut back on labor, or we'll raise prices to our customers. And they think, incorrectly, that you can somehow or another take it out of profits. But the profit fund is too small. At a business like Whole Foods Market, we pay seven to eight times more in wages than we actually make in profits.
reason: Some of the hardest people to convince of your vision of capitalism are libertarians who believe what Milton Friedman, one of your intellectual heroes, used to talk about-that the only responsibility of a business is to increase its shareholders' values. Talk a little bit about what kind of resistance you get from people who are rock-ribbed free-marketeers, who [might disagree with] your discussion of capitalism being more broadly inclusive of not just shareholders, but also other types of stakeholders.
Mackey: I get quite a bit of resistance. And it's a shame, because if you think about what really empowers the left to put high living-wage compensation, or minimum wages, or mandates of a bunch of benefits, or additional regulations on the business, it's because they don't think business is "good." They think business exists simply to maximize shareholder value and make profits. So if that's really the motivation for business, if it's not a more inclusive philosophy, then they feel quite justified in hamstringing business. Because they're basically a bunch of psychopaths running around trying to line their own pockets; we can't trust them to do the right thing, so we're going to have to do it for them.
In a more inclusive view, business has these responsibilities to all its stakeholders, customers, employees, investors, suppliers, and the larger community. If business behaved like that, the impulse to regulate and control would be lessened.
reason: Do you think we're shifting into a mode of capitalism where the idea of "doing well by doing good" is really starting to come into focus and will start energizing the way people think about business, and for-profits and nonprofits, and how the two may not be so diametrically opposed?
Mackey: I really do. When you asked me the previous question, do I feel resistance from traditional free-marketeers and libertarians? Yeah. Old ones. But as they say, social progress is made one funeral at a time. Young people are eager for these ideas. I've oftentimes gone to business schools and talked about this, and I see the professors with their arms crossed, saying, "This is about shareholder value." But the students, the MBA students, they're lapping it up, because this is exactly what they want to believe. "Yes, I can get rich, and I can do good." That seems like a win-win strategy to them and to me.