News & Perspectives

The ‘New’ Business: Conscious Capital says, “I don’t think so, Milton Friedman.”

The ‘New’ Business: Conscious Capital says, “I don’t think so, Milton Friedman.”

Perspective// Posted by: Christine Mason / 13 Nov 2013

In 1970, Nobel laureate and economist Milton Friedman published a now-infamous essay in the New York Times Magazine entitled “The Social Responsibility of Business is to Increase its Profits.” Friedman’s later expansion on this argument (published in Reason), stated, “Maximizing profits is an end from the private point of view; it is a means from the social point of view. A system based on private property and free markets is a sophisticated means of enabling people to cooperate in their economic activities without compulsion; it enables separated knowledge to assure that each resource is used for its most valued use, and is combined with other resources in the most efficient way.

”While this may seem good in theory, in practice it doesn’t work. Humans economic activities are motivated by many other values; the means matters as much as the ends. Friedman’s line of thinking has led us down a road of conflicted interest between personal gain and the greater good, a structure where we can’t trust the people or the numbers. There is a lot of friction — even finger-pointing — in this view on who is to care for the commons, and how to care for those in the non-productive parts of the society.

John Mackey, the CEO of Whole Foods, flips the means and the ends: Make profits to assure we stay in business to assure we fulfill our mission. As Mackey puts it, “Making high profits is the means to the end of fulfilling Whole Foods’ core business mission. We want to improve the health and well-being of everyone on the planet through higher-quality foods and better nutrition, and we can’t fulfill this mission unless we are highly profitable. High profits are necessary to fuel our growth across the United States and the world. Just as people cannot live without eating, so a business cannot live without profits. But most people don’t live to eat, and neither must a business live just to make profits.”

Mackey is part of a growing pool of businesspeople who get things done, who create layers of value and improvement. . . AND who also believe that profits are a means to an end. These people are sometimes called “conscious capitalists.” Generally speaking, they believe in a higher purpose for business. This philosophy balances the traditional goals of financial gain with other forms of capital.

Conscious capitalists believe that leaders must look at a business holistically, as part of an ecosystem made up of not only stakeholders, customers, and employees, but also the community at large. After all, conscious capitalists point out, a business cannot thrive unless the environment in which it exists is also healthy. They argue that ultimately this holistic worldview delivers increased value to the stakeholders because businesses that contribute to the well-being of the ecosystem will do better in the long term than those that do not; and that they will deliver not only financial value, but cultural, emotional, and human value as well. It is an internally driven philosophy, not one that comes from regulation or a sense that we “should be doing something for the greater good.”

In the past decade, conscious capitalism has gone from a radical idea to an international movement with prominent supporters within the business community. The term was brought into popular use by Muhammed Yunus,and has notable proponents in addition to Mackey. People such as Kip Tendell, Founder of the Container Store, and Doug Rauch, former President of Trader Joe’s, are vocal supporters of conscious capitalism.

It’s an exciting time as people rethink how to do business and make a better world for everyone. There are other similar approaches to re-defining the why and how of business, with significant differences:

Corporate Social Responsibility

CSR came into being in the 1960s. The core idea is that businesses will self regulate its compliance with laws, ethics and norms- social responsibility is neither a means nor an end, but rather a self-imposed form of regulation. It’s largely been focused on environmental issues, ignoring the complexities of other labor, regional and social justice questions.

Triple Bottom Line

The triple bottom line (TBL) approach, popularized by John Elkington in the 1990s, has marked similarities to conscious capitalism in that it emphasizes the combined importance of people, planet, and profit. However, many consider TBL reporting to be an expanded form of CSR.

Social Entrepreneurs & Enterprise Philanthropists

In the case of social entrepreneurs and enterprise philanthropists, social change is the primary goal, and especially in the case of philanthropists, profit has little or no place in the conversation. By applying the ideas of starting and running a company, and the organizing forces of markets, social entrepreneurs try to solve problems but have a different dashboard to measure results by.

Sustainable or Socially Responsible Investment

Directing capital in the general vicinity of desired change is another approach. For example, you may direct investment to for-profit companies working in sectors that are deemed “good,” such as renewable energy; or deflect capital from companies that provide negative goods or services, such as tobacco; or deflect capital away from companies that invest in socially retrograde countries as a way to provoke change.

What do you think? What’s the balance between means and ends?

Christine Mason
Christine maps new markets for emerging technologies, scouts for strategic expansion opportunities, and guides internal innovation strategies for leading companies.