Conscious Capitalism

Liberating the Heroic Spirit of Business

John Mackey, Rajendra Sisodia

• Publisher: Harvard Business Review Press
• Year: 2012
• Print ISBN: 9781422144206
• eBook ISBN: 9781422144220
• Topic: Business
• Subtopic: Business Ethics
• Index: Business

As seen on Oprah’s Super Soul Sunday A New York Times and Wall Street Journal Bestseller In this book, Whole Foods Market cofounder John Mackey and professor and Conscious Capitalism, Inc. cofounder Raj Sisodia argue for the inherent good of both business and capitalism. Featuring some of today’s best-known companies, they illustrate how these two forces can—and do—work most powerfully to create value for all stakeholders: including customers, employees, suppliers, investors, society, and the environment.These "Conscious Capitalism” companies include Whole Foods Market, Southwest Airlines, Costco, Google, Patagonia, The Container Store, UPS, and dozens of others. We know them; we buy their products or use their services. Now it’s time to better understand how these organizations use four specific tenets— higher purpose, stakeholder integration, conscious leadership, and conscious culture and management —to build strong businesses and help advance capitalism further toward realizing its highest potential.As leaders of the Conscious Capitalism movement, Mackey and Sisodia argue that aspiring leaders and business builders need to continue on this path of transformation—for the good of both business and society as a whole.At once a bold defense and reimagining of capitalism and a blueprint for a new system for doing business grounded in a more evolved ethical consciousness, this book provides a new lens for individuals and companies looking to build a more cooperative, humane, and positive future.

CHAPTER 1

Capitalism: Marvelous, Misunderstood, Maligned

In the long arc of history, no human creation has had a greater positive impact on more people more rapidly than free-enterprise capitalism. It is unquestionably the greatest system for innovation and social cooperation that has ever existed. This system has afforded billions of us the opportunity to join in the great enterprise of earning our sustenance and finding meaning by creating value for each other. In a mere two hundred years, business and capitalism have transformed the face of the planet and the complexion of daily life for the vast majority of people. The extraordinary innovations that have sprung from this system have freed so many of us from much of the mindless drudgery that has long accompanied ordinary existence and enabled us to lead more vibrant and fulfilling lives. Wondrous technologies have shrunk time and distance, weaving us together into a seamless fabric of humankind extending to the remotest corners of the planet.

So much has been accomplished, yet much remains to be done. The promise of this marvelous system for human cooperation is far from being completely fulfilled. Too much of the world still has not embraced the core principles of free-enterprise capitalism, and as a result, we are collectively far less prosperous and less fulfilled than we could be.

Much of the twentieth century can be seen as an extended intellectual war between two diametrically opposed social and economic philosophies—free-enterprise capitalism (free markets and free people) and communism (dictatorship and governmental economic control). By every objective measure, free-enterprise capitalism has won this battle. The United States was far more economically dynamic and socially evolved than the Soviet Union, its chief communist rival. The same held true for West Germany versus East Germany; South Korea versus North Korea; and Taiwan, Hong Kong, and Singapore versus China. With the fall of the Berlin Wall in 1989, country after country began to turn toward greater political and economic freedom in the 1990s and 2000s, as the dismal economic and societal results of the various socialistic experiments conducted in the twentieth century became better known. As this transition to greater freedom took root, many countries experienced rapid economic growth, and hundreds of millions of poor people were able to escape grinding poverty.

Of course, much of the Western world has benefited from the fruits of free-enterprise capitalism for about two centuries now. The success of free-enterprise capitalism in improving the quality of our lives in countless ways is the most extraordinary but poorly understood story of the past two hundred years. It has enabled humankind to progress at a rate unprecedented in all of history. Consider these facts:

• Just 200 years ago, 85 percent of the world’s population lived in extreme poverty (defined as less than $1 a day); that number is now only about 16 percent.¹ Free-enterprise capitalism has created prosperity not just for a few, but for billions of people everywhere.
• As figure 1-1 shows, average income per capita globally has increased 1,000 percent since 1800.² It has increased 1,600 percent in developed countries. Japan’s income per capita has increased by 3,500 percent since 1700. Adjusting for affordability and quality improvements, the standard of living of ordinary Americans has increased 10,000 percent since 1800!³ Perhaps most startling, the gross domestic product (GDP) of South Korea has grown 260-fold since 1960, transforming it from one of the poorest countries in the world to one of the richest and most advanced.⁴
• Over tens of thousands of years, the human population grew very slowly and declined frequently as huge epidemics such as the plague and influenza claimed millions of lives. It finally crossed one billion around 1804 and has grown rapidly since to over seven billion, primarily because of progress in sanitation, medicine, and agricultural productivity.⁵
• In the past two hundred years, average life expectancy across the world has increased to sixty-eight years, from its long historical average of thirty years or less.⁶
• In just the past forty years, the percentage of undernourished people in the world has dropped from 26 percent to 13 percent.⁷ If current trends continue, we should see hunger virtually eliminated in the twenty-first century.
• From a world of almost complete illiteracy, we have transformed, in only a couple of hundred years, into one in which 84 percent of adults can now read.⁸
• With the growth of economic freedom, 53 percent of people now live in countries with democratic governments elected by universal suffrage, compared with zero people just 120 years ago, as even democracies denied women or minorities, or both, the right to vote.⁹
• Contrary to popular belief, prosperous countries have a higher level of life satisfaction. The self-determination associated with free markets, along with greater prosperity, leads to greater happiness. The top quartile of economically free countries has a life satisfaction index of 7.5 out of 10, compared with 4.7 for the bottom quartile.¹⁰

FIGURE 1-1

World population and gross domestic product (GDP) per capita

Source: Data from Angus Maddison, “Statistics on World Population, GDP and Per Capita GDP, 1–2008 AD,” Groningen Growth & Development Centre Web page, March 2010, www.ggdc.net/MADDISON/oriindex.htm.

Entrepreneurs: The Heroes of Free-Enterprise Capitalism

In her recent book Bourgeoisie Dignity, Deirdre McCloskey, an economist at the University of Illinois in Chicago, argues persuasively that the most important factors in free-enterprise capitalism’s success have been entrepreneurship and innovation, combined with freedom and dignity for businesspeople.¹¹ The inventions that have changed the world—automobiles, telephones, gasoline, the Internet, antibiotics, computers, airplanes—didn’t happen automatically or by government edict; they all required massive amounts of innovation. Human creativity, partly individual but mostly collaborative and cumulative, is at the root of all economic progress.

Entrepreneurs are the true heroes in a free-enterprise economy, driving progress in business, society, and the world. They solve problems by creatively envisioning different ways the world could and should be. With their imagination, creativity, passion, and energy, they are the greatest creators of widespread change in the world. They are able to see new possibilities and enrich the lives of others by creating things that never existed before.

Educator Candace Allen, wife of economics Nobel laureate Vernon Smith, writes movingly about the need for entrepreneurial heroes in society and the great impact they have on our lives: “Ultimately, the hero is the representative of the new—the founder of a new age, a new religion, a new city, the founder of a new way of life or a new way of protecting the village against harm; the founder of processes or products that make people in their communities and the world better off. What I will contend here is that in our modern world, the wealth creators—the entrepreneurs—actually travel the heroic path and are every bit as bold and daring as the heroes who fought dragons or overcame evil.”¹²

Why Capitalism Is Under Attack

Despite enabling widespread prosperity, free-enterprise capitalism has earned little respect from intellectuals and almost no affection from the masses. Why is it so disliked by so many people? Does it need to change? Do we need to think about it differently?

Rather than being seen for what they really are—the heroes of the story—capitalism and business are all too frequently vilified as the bad guys and blamed for virtually everything our postmodern critics dislike about the world. Capitalism is portrayed as exploiting workers, cheating consumers, causing inequality by benefiting the rich but not the poor, homogenizing society, fragmenting communities, and destroying the environment. Entrepreneurs and other businesspeople are accused of being motivated primarily by selfishness and greed. Meanwhile, the defenders of capitalism frequently speak in a jargon that not only fails to inspire people, but often reinforces the ethical critique that capitalists only care about money and profits and that businesses can only redeem themselves through “good works.” This is a fundamentally misguided view.

We believe that capitalism has long been under attack for several reasons:

1. Businesspeople have allowed the ethical basis of free-enterprise capitalism to be hijacked intellectually by economists and critics who have foisted on it a narrow, self-serving, and inaccurate identity devoid of its inherent ethical justification. Capitalism needs both a new narrative and a new ethical foundation, one that accurately reflects its intrinsic goodness and virtue.
2. Too many businesses have operated with a low level of consciousness about their true purpose and overall impact on the world. Their tendency to think in terms of trade-offs has led to many unintended, harmful consequences for people, society, and the planet, resulting in an understandable backlash.
3. In recent years, the myth that business is and must be about maximization of profits has taken root in academia as well as among business leaders. This has robbed most businesses of the ability to engage and connect with people at their deepest levels.
4. Regulations and the size and scope of government have greatly expanded, creating the conditions for the spread of crony capitalism, restricting competition in favor of politically well-connected businesses. Crony capitalism is not capitalism at all, but is seen as such by many because it involves businesspeople.

These are significant challenges, but they must be overcome if we are to continue to spread freedom and bring dignity and the fruits of modernity to the billions on the planet who are still in dire need.

The Intellectual Hijacking of Capitalism

The early intellectual case for capitalism was built almost exclusively on the theory that people create businesses to pursue only their personal self-interest. Economists, social critics, and business leaders largely disregarded the second and often more powerful aspect of human nature: the desire and need to care for others and for ideals and causes that transcend one’s self-interest. The founding father of modern capitalism, Adam Smith, recognized both of these powerful human motivations. His book The Theory of Moral Sentiments preceded his far better-known book, The Wealth of Nations, by seventeen years. In the earlier book, he outlined an ethics based on our ability to empathize with others and to care about their opinions. Through our ability to empathize, we are able to understand how other people are feeling and imagine what it would be like to be in their shoes.

Smith was far ahead of his time, both in his economic philosophy and in his ethical system. If the intellectuals of the nineteenth century had embraced and integrated his economic and ethical philosophies, we might have avoided the extraordinary strife and suffering that occurred in the nineteenth and twentieth centuries over competing political and economic ideologies.

Unfortunately, that did not happen. Smith’s views on ethics were largely ignored, and capitalism developed in a stunted way, missing the more human half of its identity. This created fertile conditions for ethical challenges to capitalism, which were not long in coming. Karl Marx attacked capitalism as inherently exploitative of workers. Critics used the Darwinian idea of the survival of the fittest to describe markets as inherently ruthless and brutal. Just as nature was seen as “red in tooth and claw,” business was seen as harsh, dehumanized, and uncaring. These descriptions ignored the higher-level human aspirations and capabilities that free-enterprise capitalism potentially taps into so well.

Another factor that fed distrust of capitalism was a failure to distinguish between the fixed-pie or zero-sum concept of mercantilism and the expanding-pie concept of free-enterprise capitalism. Much of today’s animosity toward capitalism stems from a misconception that we need to share all resources fairly and equitably. But the reality is that by artfully combining resources, labor, and innovation, wealth can be greatly expanded. The poor can become wealthier without requiring the well-off to become poorer. The pie grows, and there is more for everyone. This idea is at the core of capitalism’s extraordinary and unique ability to generate wealth.

The Unintended Consequences of Low-Consciousness Business

When businesspeople operate with a low level of consciousness about the purpose and impact of business, they engage in trade-off thinking that creates many harmful, unintended consequences. Such businesses view their purpose as profit maximization and treat all participants in the system as means to that end. This approach may succeed in creating material prosperity in the short term, but the resultant price tag of long-term systemic problems is increasingly unacceptable and unaffordable. Too many businesses fail to recognize the significant impacts they have on the environment, on other creatures that inhabit the planet (such as wildlife and livestock animals), and on the physical health and psyches of team members and customers. Many businesses have created stressful and unfulfilling working conditions and fostered and fed unhealthy appetites and addictions in their customers. Many companies tend to treat all these as externalities, outside the scope of their own concerns.

Symptoms of dysfunction and disaffection abound in the corporate world. The average level of engagement that American team members have with their work has remained at 30 percent or less for the past ten years, and almost as many people are hostile to their employers.¹³ Top executives at the helm of many major corporations have rigged the game to enrich themselves at th...

Table of contents

• Cover Page
• Title Page
• Contents
• Foreword: Getting Capitalism Back on Track, by Bill George
• Introduction: Awakenings
• 1. Capitalism: Marvelous, Misunderstood, Maligned
• 2. Conscious Capitalism and the Heroic Spirit of Business
• Part One: The First Tenet: Higher Purpose
• Part Two: The Second Tenet: Stakeholder Integration
• Part Three: The Third Tenet: Conscious Leadership
• Part Four: The Fourth Tenet: Conscious Culture and Management
• The Conscious Capitalism Credo
• Appendix A: The Business Case for Conscious Capitalism
• Appendix B: Conscious Capitalism and Related Ideas
• Appendix C: Misconceptions About Conscious Capitalism
• Notes
• Acknowledgments
• About the Authors