Free Markets

Whole Foods’ John Mackey: Why Intellectuals Hate Capitalism

They're jealous, he says, they side with rulers, and they don't understand how markets work.

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"Intellectuals have always disdained commerce" says Whole Foods Market co-founder John Mackey. They "have always sided…with the aristocrats to maintain a society where the businesspeople were kind of kept down."

More than any other outlet, Whole Foods has reconfigured what and how America eats and the chain's commitment to high-quality meats, produce, cheeses, and wines is legendary. Since opening his first store in Austin, Texas in 1980, Mackey now oversees operations around the globe and continues to set the pace for what's expected in organic and sustainably raised and harvested food.

Because of Whole Foods' trendy customer base and because Mackey is himself a vegan and champions collaboration between management and workers, it's easy to mistake Mackey for a progressive left-winger. Indeed, an early version of Jonah Goldberg's best-selling 2008 book Liberal Fascism even bore the subtitle "The Totalitarian Temptation from Mussolini to Hillary Clinton and The Totalitarian Temptation from Hegel to Whole Foods."

Yet nothing could be further from the truth—and more distorting of the radical vision of capitalism at the heart of Mackey's thought. A high-profile critic of the minimum wage, Obamacare, and the regulatory state, Mackey believes that free markets are the best way not only to raise living standards but also to explore new ways of building community and creating meaning for individuals and society. At the same time, he challenges all sorts of libertarian dogma, including the notion that publicly traded companies should always seek to exclusively maximize shareholder value (go here to read a 2005 Reason debate about the social responsibility of business featuring Mackey, Milton Friedman, and Cypress Semiconductor CEO T.J. Rodgers). Conscious Capitalism, the book he co-authored with Rajendra Sisodia, lays out a detailed case for Mackey's vision of a post-industrial capitalism that addresses spiritual desire as much as physial need.

Reason TV's Nick Gillespie talked with Mackey earlier this summer at FreedomFest, where among other things, Mackey debated billionaire Peter Thiel on the role of monopoly and competition in business.

Runs about 16 minutes.

Produced by Todd Krainin. Cameras by Zach Weissmueller and Paul Detrick.

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THIS IS A RUSH TRANSCRIPT. CHECK ANY QUOTES AGAINST THE VIDEO FOR ACCURACY.

reason: Hi, I'm Nick Gillespie with ReasonTV, and today we're talking with John Mackey. He's the co-founder of Whole Foods Market and the co-author of Conscious Capitalism. John, thanks for talking to us.

John Mackey: Glad to be here, Nick.

reason: What I'm especially interested in talking with you about is the attacks that you see capitalism under, systematically. I know that, from reading your book, and from talking with you, you believe that capitalism is not only the greatest wealth creator, it helps poor people get rich, it helps everybody along the way. But you see it as constantly being misrepresented, even by its champions. Why is capitalism under attack?

Mackey: Intellectuals have always disdained commerce. That is something that tradesmen did; people that were in a lower class. And so you had minorities, oftentimes did it, like you had the Jews in the West. And when they became wealthy and successful and rose, then they were envied, then they were persecuted and their wealth confiscated, and many times they were run out of country after country. Same thing happened with the Chinese in the East. They were great businesspeople as well. So the intellectuals have always sided kind of with the aristocrats to maintain a society where the businesspeople were kind of kept down. You might say that capitalism was the first time that businesspeople kinda caught a break, because of Adam Smith and the philosophy that came along with that, and the industrial revolution began this huge upwards surge of prosperity.

reason: Is it a misunderstanding of what business does? Is it envy? Is it a lack of capacity to understand that what entrepreneurs do, or what innovators do, is take a bunch of things that might not be worth much separately and then they transform it? What is the root of the antagonism towards commerce?

Mackey: It's sort of where people stand in the social hierarchy, and if you live in a more business-oriented society, like the United States has been, then you have these businesspeople, who they don't judge to be very intelligent or well-educated, having lots of money, and they begin to buy political power with it, and they rise in the social hierarchy, whereas the really intelligent people, the intellectuals, are less important. And I don't think they like that. And I think that's one of the main reasons why the intellectuals have usually disdained commerce: they haven't seen it, the dynamic, creative force, because they measure themselves against these people, and they think they're superior, and yet in the social hierarchy they're not seen as more important. And I think that drives them crazy.

reason: What happens to a business person, I mean, because a lot of the times they are plucky upstarts; they're innovators, they're disruptive, and they're fighting against the power. And then what happens that once they get to a certain point of influence or power, then they start to try and rig the market or freeze the market in their favor?

Mackey: I don't know if it's a psychological switch so much as that they weren't necessarily grounded in the philosophy of capitalism. They weren't necessarily advocates of the free market. They were just advocates of their own advancement, their own personal enrichment. And so I think oftentimes, they don't make a distinction between when they're entrepreneurs on the way up versus when they've arrived, and they're attempting to not fall, so they try to rig the game, and we have crony capitalism that way.

reason: We live in an age now, and you've talked about this a lot, where there are just an unbelievable amount of government mandates that restrict the ability of business owners and employees to really negotiate about stuff. There's things as obvious as the minimum wage, where it says, "Under no circumstances, a business cannot offer somebody less than this amount." How do these affect your ability to run a business that is in an extremely competitive market?

Mackey: The impetus behind so many of these type of regulations in the workplace is, in a sense, to shackle business again; to get it back under the control of the intellectuals. Just like commerce, if you study the history of business, you will see that most of the time in our history, commerce was controlled by the aristocrats. The merchants were kept under their thumb, and now they've escaped, and we had this free-market ideology that said the market should determine all these things, and now they're systematically undermining that marketplace to get business back, get the genie back in the bottle. Of course, that will stifle innovation, it'll stifle the dynamic nature, the dynamic creative destruction of capitalism.

But I don't think they're thinking about it that way. They just see business as this, you know, selfish—they're very concerned about the motives of business, and they see it as this selfish, greedy, and exploitative thing: businesspeople can't be trusted, markets aren't just, they're not fair, so we need to intervene; we need to control this situation. And they fear markets. They fear the dynamic nature of it, and they don't like businesspeople, so they feel perfectly justified in setting up all these regulations that restrict the freedom of business. Let's take the minimum wage, for example. It's a great example, because if you think about it for a minute, 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, and 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 for Tom, and we know better what's for you, and we're not gonna let you guys freely come together and do voluntary exchange."

reason: Well, though, the argument is that especially in an era where there's high unemployment and low labor-force participation, it's a buyer's market. You could probably get Tom—he might be willing—he wants to work for $10, 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 B) 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 $0.10 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 gonna 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 less service, 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's 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, healthcare in a competitive format. They're basically saying, "You must cover this." Let's say that 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 some lobbyist somewhere can jam that through. When they jammed that 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 compensation. And 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, but 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, then 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 in 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. In 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 or conservatives who believe what Milton Friedman, one of your "intellectual heroes," used to talk about is that the only responsibility of a business is to increase its shareholder values. Talk a little bit about what kind of resistance you get from people who are rock-ribbed free-marketeers who find your discussion of capitalism being more broadly inclusive of not just shareholders, but also other types of stakeholders. What kind of resistance do you get there?

Mackey: Well 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, minimum wages, or mandates, a bunch of benefits, or puts additional regulations on the business—it's because they don't think business is good. They think that business exists simply to maximize shareholder value and make profits, so if that's really the motivations 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." So, in a more inclusive view, that business has these responsibilities to all its stakeholders, its 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 good by doing well" is really starting to come into focus and will start energizing the way people think about business, and for-profits and non-profits, 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. And, as they say, social progress is made one funeral at a time. But young people are eager for these ideas. I've oftentimes gone to business school and talk 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.

reason: What's the next big launch that you're going to be doing?

Mackey: Well the thing we're really excited about is we're going to be launching a new brand, and a new format store, which is based on our "365 Everyday Value" private label, and we're going to be naming the stores "365 by Whole Foods Market." That will be the full name of the store. And these stores, first they're going to have a curated product selection that'll only be lower-priced goods. So you can find lots of inexpensive wine there, but if you want to get a $500 bottle of Cabernet Sauvignon, you better go to Whole Foods, because you're not going to get it at 365. And that'll be—you're not going to find $40 bries there either. Whole Foods has always prided itself on selling the very best, highest quality we can find. We're still going to have great quality for 365, but we're going to curate it.

reason: People talk about Whole Foods as "Whole Paycheck," and I know that there are various price points in the store, but does that get to you after a while that people are—do you think they're mischaracterizing the store?

Mackey: First of all, it's a cliché now. So people that kind of laugh, and are smug about it, it's like, "Hello… people have been saying that, it's a completely old joke." So I barely can ever read an article about Whole Foods that doesn't say it. So yeah, of course I don't like it.

reason: So when are the 365 stores rolling out?

Mackey: They'll start rolling out early 2016, and I don't know, we'll probably open 10 or 15 or something like that the first year.

reason: Well, I think we will leave it there, then.

Mackey: OK, sounds good.

reason: Thank you John Mackey, the co-founder of Whole Foods Markets, as well as the co-author of Conscious Capitalism, for talking to ReasonTV.