The conscious capitalist discusses Whole Foods’ evolution, his controversial health-care comments, and why he’s a market evangelist. Excerpt from Inforum’s “A Whole-istic Approach to Capitalism,” January 22, 2013.

JOHN MACKEY, CEO, Co-founder, Whole Foods Market; Co-author, Conscious Capitalism

In conversation with RUTH SHAPIRO, Principal, Keyi Strategies; Editor, The Real Problem Solvers: Social Entrepreneurs in America

RUTH SHAPIRO: Tell us about starting Whole Foods in Austin, Texas, and the growth of the company.

JOHN MACKEY: We originally had a store called Safer Way, which was a take on Safeway. We started that in 1978, with $45,000 in capital, which we got from friends and family. We did manage to lose half of that in our very first year. My girlfriend and I were living in the house where the store was. It wasn’t zoned for anyone to live there, but we were poor. We didn’t have a shower or bath, so we actually climbed in the Hobart dishwasher and wet ourselves down.

I had no business background. I never took any business classes in school. I have a very interesting resume: dishwasher, busboy, CEO of Whole Foods Market. We made $5,000 the second year. We decided we knew what we were doing, but we needed a bigger store. So we found a location that went from 3,000 to 10,000 square feet. We opened the first natural foods supermarket in Texas and merged with another store we were competing with and opened that first store. It was an incredibly successful store from the first moment we opened it.

Then Austin had its worst flood in over 100 years. Our store was under eight feet of water Memorial Day, 1981. When we showed up at the store the day after the flood, it was a total wreck, but we had dozens of customers who had come in to shop and they were helping us clean up the store. Then we had neighbors come in to help us. I got this stakeholder philosophy because all of these different stakeholders pitched in to save Whole Foods Market. Our customers helped us clean up the store. Our team members worked for free while we were trying to get the store rebuilt. Our suppliers fronted us new inventory on credit. Our investors put new capital in. The bank loaned us new money. I thought we were bankrupt and dead, and they didn’t let us die. I really got the stakeholder philosophy at the time that we were really about the stakeholders. We wanted to pay them all back. That spurred us to do a second store. You can’t have all of your eggs in one grocery basket that’s subject to having eight feet of water on top of it. So we had a second store. I’ve always paid a lot of attention to flood zones ever since then. We’ve not gone back into a flood zone area.

SHAPIRO: Was the higher purpose of Whole Foods part of your business plan and your business vision from the beginning?

MACKEY: Just like consciousness evolves over time, purpose evolves over time. Whole Foods’ original purpose was very simple: Let’s sell healthy food to people, let’s earn a living and let’s have some fun doing it. That was really the original purpose of Whole Foods. Now we have these much more heroic purposes, because Whole Foods has scaled up. It has a much bigger impact. We want to heal America. America is sick. We’re 69 percent overweight, 36 percent obese, and 80 percent of the money we spend on health care in America goes to basically lifestyle diseases – heart disease, stroke, diabetes, cancer, auto-immune diseases. They’re not going to be cured – we’re not going to have a vaccination for cancer, heart disease ain’t going to be reversed with a drug. These are things we’re doing to ourselves mostly. Not always, there are other factors involved; it can be genetic. But [the diseases mentioned above] correlate very highly with diet and lifestyle, so one of our higher purposes is to help educate people how to eat a healthy diet, how to avoid these diseases, how to be vital and thin and live to be 90 and live to be 100 with clear mind and a vital, healthy body. I think that’s part of Whole Foods’ higher purpose. We also want to change the agricultural system to create a sustainable agricultural system. [And we want] sustainable seafood, high animal welfare standards, more environmental integrity and also [to be] highly productive and efficient. Now we’ve got our Whole Planet Foundation, we’ve realized that we have a higher purpose to help end poverty on the planet Earth. We’ve affected over a million people’s lives in the developing world and helped end poverty. Finally, the fourth higher purpose I’m doing tonight: Trying to spread the vision of conscious capitalism, that business can be more conscious and can help transform the world.

SHAPIRO: Why did you write this book [Conscious Capitalism]?

MACKEY: The narrative about business has been captured by the enemies and critics of business. Businesspeople are perceived as selfish, greedy, exploitative; they’re not seen as good. An example: Over 90 percent of the murders you see on television are committed by businesspeople. Look at all the television shows and movies. It’s usually some greedy bastard businessperson. All he cares about is money. After he rips off his employees and dumps his waste products in the river, then he goes out and shoots people. Business has a very, very bad reputation. We [co-author Raj Sisodia and I] think that business is the greatest creator of value in the world. We wrote this book partly to try to change the narrative about business. Business is fundamentally good, but we can make it a lot better. This book is about how to make business a lot better.

SHAPIRO: Let’s talk about conscious capitalism. You mentioned that there are higher purposes, one of the core tenets. There are three others and I’d like to just have you go through and explain what they are.

MACKEY: We do think there are four basic tenets. One is higher purpose, besides just making money. Secondly, that the business should exist to create value for all of the major stakeholders, and not just the investors. Third, we need a different type of leader in the conscious business. We need leaders who are really dedicated to the mission of the business, who aren’t in it just to get as many stock options and as big a bonus as is possible. We also need a different kind of culture. The fourth component is a more empowered, humanistic culture. Organizations need to create cultures where human beings flourish, where they can self-actualize and reach their highest potential. Purpose, stakeholders, leadership, culture: They all fit together.

SHAPIRO: When you were going into the market, people were buying your stock because they thought they would make money. Was there pushback on these ideas when you went public?

MACKEY: I’ll make a couple of comments on this. First of all, the only time the investors ever push back is if the stock goes down. I always like to joke, when the stock goes up, people think they’re brilliant investors. When the stock goes down, they think the CEO is the village idiot. Whenever we’d see the stock fall off, people would start to criticize – particularly in the early days – and they’d say, “This would be such a good company, if they just weren’t doing this crazy philosophy.” Of course the stock would go back up and we were golden again.

In a lot of ways the investor stakeholders are the easiest ones to deal with. Think about all the stakeholders. All the stakeholders want more. Customers want lower prices; they think it’s too expensive; they want higher quality; they want better service. Team members, they want higher pay, better benefits, better working conditions; they want to get promoted. Suppliers want you to sell all their products on the shelves, not just a few, and they want to get fewer discounts. Investors are the easiest ones. They just want the stock price to go up. If you do that, they’ll pretty much leave you alone. In my own experience, the customers are actually the most difficult stakeholders. They’ll give you contradictory advice. One will tell you the very thing they dislike about you, and somebody else will say, “Don’t ever change that.”

SHAPIRO: You’ve gotten a lot of attention about your views on health care. You do have strong feelings about the Affordable Health Care Act that was enacted in the last Congress, otherwise known as Obamacare.

MACKEY: I’m not going to spend much time on it, because when I’ve been travelling around trying to promote my book, all anybody wants to talk about is health care. Conscious capitalism is totally not political at all. I feel like people are beginning to associate things I’ve said about health care with conscious capitalism, when they’re totally not related.

The main thing is I am passionate about capitalism. [Capitalism] has lifted humanity out of poverty; hundreds of millions of people are leaving poverty every decade, primarily due to countries like China and India turning toward more free-market philosophies and economics. Two hundred years ago, 85 percent of the people alive lived on less than one dollar a day. Today that’s 16 percent. Two hundred years ago over 90 percent of the people alive were illiterate. The average lifespan was under 30. Today it’s 68 across the world, 78 in the United States and 80 in Japan. We’ve seen great progress, and I think it’s primarily due to capitalism. I’m a great enthusiast for capitalism. Our health-care system hasn’t really been free-enterprise capitalism for over 50 years. We’ve moved to a more and more regulated system.

Nobody knows what anything costs in our health-care system. There is no real price competition. It’s crony capitalism at best. It’s a cartelized system and now it’s going toward a more and more government-controlled system. I believe in free-enterprise capitalism, I believe that’s what our health-care system will be based on. Yes, with a safety net, of course. We don’t want to throw anybody under a bus. We don’t want to throw cancer patients out on the street. We need to take care of everybody, but we can do that with a vital, vibrant free-enterprise capitalistic system. I think that would create greater innovations. It would drive costs down, as it does in every other area. Computers have gotten cheaper, iPhones get cheaper; believe it or not, health care could get cheaper if we really let the free market and free enterprise work. We’re not doing that. We haven’t done it in a long time. As a result we’ve gotten a more and more bureaucratized, government-controlled system, which is not delivering the results that we want from it.

Whole Foods, for example, has a great health-care system for our team members. Our team members really like it, and it’s going to be radically changed [under Obamacare]. I’m not happy about that. I don’t want to see that system destroyed because the government tells us that it’s no longer acceptable, that we have to do this and this and this. That’s why I’ve spoken up and [said] that’s not what conscious capitalism is about, and this shouldn’t be put together.

I’ve used some language about it that I regret. I’ve apologized 15 times last week in New York on national television. I will once again apologize. It was a bad choice of words, it’s got a lot of bad associations with it and I apologize to this audience as well. I don’t think that’s in the best interest of our team members, I don’t think it’s in the best interest of our society, so I’ve spoken up about health care. I can tell you, it’s a thankless task. and all these people hate my guts. I don’t really want to talk about health care anymore, because I’m tired of being hated by everybody.

Audience Member: What are the policies that will support conscious capitalism businesses?

MACKEY: Other than with the environment, I don’t think you need any government policies. If anything, it’s harder to be an entrepreneur today than when I got started – just a lot more regulations. The Small Business Administration has documented that business spends about $1.75 trillion a year fulfilling regulation requirements.

Of course, I’m not saying we shouldn’t have any regulations. I’m not talking about anarchism. We also need to develop some type of system where the old, bad regulations which aren’t working; we can get rid of them. They just stay there, they continue to be burdensome for business and it becomes more and more difficult to do business.

[The] environment is clearly an area where we need government regulations, because there is the tragedy of the commons. You’re going to have externalities that are produced, and you don’t want the good guys to be punished and the bad guys to reap a windfall. To me, that’s a clear area where we need good government regulations.

SHAPIRO: I’d add pharmaceutical as another industry where you need regulation.

MACKEY: Yeah, but that’s a great example of what I would call crony capitalism. It costs a billion dollars to bring a drug to market. No start up, no entrepreneurial company can even play. Nobody is allowed to innovate; no one is allowed to compete. Of course we need some type of regulation on it, but the way it’s been rigged – the pharmaceutical industry is a great example of what you would call regulatory capture, where the people that are regulating it end up working for the pharmaceutical industry and the people in the pharmaceutical industry end up being the regulators. And still bad things happen.

SHAPIRO: Would it be right to say then that it’s not so much regulations as an impediment to monopolistic behavior that you [object to?]

MACKEY: It’s the old problem of who guards the guardians. Who regulates the regulators?

We all know we need regulations, but people make this mistake in believing that business needs to be regulated but that somehow or another there is never failure at government level. That there’s market failure, but there’s never government failure. To me we have market failure and we have government failure and we don’t have good ways always to correct government failure.