Capitalism Rebooted: Why Businesses Must Reach Out For A Higher Purpose Than Just Profit-Making
John Mackey and Raj Sisodia in their book, Conscious Capitalism, assert how conscious businesses make excellent profits while simultaneously caring for customers, team members, investors, the community and the environment.
Conscious Capitalism: Liberating the Heroic Spirit of Business by John Mackey and Raj Sisodia, Harvard Business Review Press, Rs 617, 368 pages
In 1970, the Nobel Prize-winning economist Milton Friedman wrote an essay in the New York Times titled, ‘The Social Responsibility of Business Is to Increase Its Profits’. In the article, Friedman criticised businessmen who make employees, communities and the environment their concern. He said:
Businessmen who take seriously their responsibilities for providing employment, eliminating discrimination, avoiding pollution... are preaching pure and unadulterated socialism.
In a 2005 Reason debate, John Mackey of Whole Foods Market challenged that view suggesting that corporations had a much broader role to play in society and need to seek a broader purpose than just profit-making.
John Mackey and Raj Sisodia in Conscious Capitalism: Liberating the Heroic Spirit of Business (2013) expand on the viewpoint posed by Mackey in the 2005 debate.
First things first: Mackey and Sisodia are not socialists. They do not want government interference in the economy. As they put it:
Free-enterprise capitalism is the most powerful system for social cooperation and human progress ever conceived. It is one of the most compelling ideas we humans have ever had. But we can aspire to something even greater.
This is not a radically new perspective. It exists from the time of Adam Smith, the founding father of modern capitalism. Smith is rightly known for his book The Wealth of Nations. But prior to that, he wrote a book, The Theory of Moral Sentiments, in which he pointed out that in addition to personal self-interest, there is a 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.
Regarding conventional capitalism, Mackey and Sisodia write:
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.
Profit maximisation is a narrow view adopted by economists because it leads to elegant mathematical models of economic systems. These models can be solved to obtain a protocol for running a business. Profits are, of course, important, and businesses that are not profitable cannot survive for long in the marketplace.
As the authors write:
Without profits, entrepreneurs cannot make the necessary investments to replace their depreciating buildings and equipment or to adapt to the always-evolving and competitive marketplace. The need for profit is universal for all businesses in a healthy market economy.
But economists went ahead and asserted that maximising profits is the only goal that entrepreneurs should seek. This has done enormous damage to the reputation of capitalism and the legitimacy of business in society. It has also allowed the growth of crony capitalism, which poses a grave threat to our well-being and freedom.
The authors suggest that entrepreneurs should strive to make their business "conscious", i.e., it should have a higher purpose based not only on high intelligence quotient but also high emotional quotient, spiritual quotient and systems intelligence.
There are several objections that have been raised against Conscious Capitalism. Some of them are: Conscious Capitalism is just "putting lipstick" on a pig (business is still all about profits); Conscious Capitalism only works in good times; Conscious Capitalism is a luxury good – only companies in high-end markets can afford it; Wall Street will never see the value of Conscious Capitalism; once the founder leaves, companies always revert to the norm; becoming a conscious business requires changing everything and is thus impossible, etc.
Mackey and Sisodia painstakingly correct these misconceptions and show that conscious businesses have been able to perform superlatively along all business metrics. Conscious businesses make excellent profits while simultaneously caring for customers, team members, investors, community and the environment.
Examples of conscious businesses that the authors list include Amazon.com, Southwest Airlines, Tata, Starbucks, REI, Twitter and The Container Store.
As the authors conclude:
Conscious businesses can help evolve our world in such a way that billions of people can flourish, leading lives infused with passion, purpose, love, and creativity – a world of freedom, harmony, prosperity and compassion.