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Bottom Lines Still Matter

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Bottom Lines Still Matter

Amazon’s lesson for Whole Foods’ John Mackey June 20, 2017
Economy, finance, and budgets

Amazon’s acquisition of Whole Foods is a big deal in the supermarket sector, but its’s also deeply ironic and instructive for those familiar with the business philosophy of Whole Foods founder John Mackey— that business can and should operate on a higher moral plane, striving to manage itself in ways not just profitable but also that would serve  some of the purposes of traditional philanthropy.

Riding high in 2013, Mackey coauthored Conscious Capitalism, a Harvard Business Review Press book envisioning a “heroic spirit of business” that would benefit society. Instead of trying to please corporate shareholders, the conscious capitalist would serve a wide array of “stakeholders” by “focusing some of their attention on social and environmental challenges.” Conscious-capitalist business would be “built on love and care rather than stress and fear”; workdays would “race by in a blur of focused intensity, collaboration, and camaraderie.” All this contrasts favorably, wrote Mackey, with the narrow horizons of “traditional businesses,” which “give their managers hard targets for metrics like market share, profit margins, and earnings per share.”

Mackey’s claims echo those of another one-time New Age darling, Bangladeshi Nobel Laureate Muhammad Yunis, the guru of microfinance—hyped for a time as a means to alleviate poverty by making small loans to the rural poor. Before microfinance was widely debunked, Yunis published Building Social Business: The New Kind of Capitalism That Serves Humanity’s Most Pressing Needs, in which he called for structuring companies to pursue “selfish and selfless interests at the same time.”

Mackey and Yunis have affinities with the “impact investment movement,” which the Stanford Social Innovation Review has called “philanthropy’s new frontier.” Like Whole Foods—with its wine-bottle cork recycling and trademark cloth bags—this kinder, gentler, and morally superior version of capitalism seeks the “triple bottom line”: providing jobs at a “living wage,” selling “sustainable” products, and uplifting poor communities. Its proponents include former Rockefeller Foundation president Judith Rodin, who describes “impact investments” that “deliver both financial returns and social and environmental benefits” and represent “a new way of deploying capital that can combine the demand for profitability with a desire to solve environmental problems.” For some, the movement’s apogee is the so-called B (for benefit) Corporation, legally organized to serve goals other than financial returns, such that poor financial performance can be balanced—in reports to shareholders, at least—by success on other dimensions. I’ve called all of this, from Mackey to Rodin, the “quasi-capitalism” movement.

Jeff Bezos has just thrown a monkey wrench into its works with the reminder that good service, low prices, and beating competitors still matter. Those managing the endowments of major foundations—a number of whom have announced that they will use impact investing to guide both grant-making and asset-investment strategy—should pay attention. They, like Yunis (though less so Mackey, who is a bit kinder to his unenlightened competitors), overlook the fact that free-market capitalism already provides essential social benefits, without the need for humanistic window dressing.

For instance, cellphone technology has made small fishermen in South Asia able to call ahead and locate the port with the best price for their catch, rather than coming late to another and throwing the fish back. The Financial Times reports on an entrepreneur in Kenya who set up shop to buy sorghum from farmers in the area 260 miles northeast of Nairobi and to sell it to a regional brewer to help make low-cost beer. “The cramped store,” the story put it, “may not look like much. But it is helping to transform the lives of thousands of farmers in Africa.” Capitalism creates a virtuous circle of societal improvement, allowing industrious but low-skilled workers to enjoy regular cash income instead of eking out irregular subsistence wages. Free markets don’t benefit only the savviest go-getters but also help the average consumer, delivering necessary goods and services at competitive prices. And who was it that brought low-cost, widely available consumer goods to rural America? It sounds like impact investing, but it was Walmart.

Historically, business, government, and philanthropy have operated as distinct and complementary spheres. Government should not set the agenda for philanthropy (as the Obama administration sought to do). Business should not adopt pretensions beyond its essentially healthy functions. And philanthropy should recognize that it has a vital role in serving needs that the market does not—whether preparing the disadvantaged to compete in the working world, supporting medical research, or treating the drug-addicted. The fall of Whole Foods reminds us that no movement—short of socialism—can repeal the profit-and-loss statement as the guide star for business.

Photo by Spencer Platt/Getty Images

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