Date of Award

Spring 2016

Degree Name

Bachelor of Science

Major

Economics

First Advisor

Adam Grossberg

Abstract

For years, mainstream economic theory has assumed that the only legitimate purpose of business is to maximize profits. In Conscious Capitalism: Liberating the Heroic Spirit of Business, authors John Mackey and Raj Sisodia reject this assumption, arguing that many firms have a genuinely motivated higher purpose. In addition to having a purpose beyond profit maximization, the conscious business model proposed by the authors calls for maximizing value for all stakeholders (employees, customers, suppliers, society, the environment, and investors), instead of for investors exclusively. However, the authors cite a number of examples of practices of conscious businesses that are justified in the economics literature for the exclusive goal of profit maximization, and indexes of firms with qualities similar to those of conscious firms have been shown to outperform the broader market, sometimes significantly. Despite the business model’s rejection of profit maximization as the sole function of businesses, do the goals of a conscious business suggest a strategy that paradoxically leads to profit maximization? This paper explores the potential for the conscious capitalism business model to be justified from a profit maximization standpoint through a broad exploration of the economics literature on various common practices of conscious businesses. Additionally, a case study examines two discount retailers: Walmart has a reputation for having troubled relationships with its stakeholders, while Costco is frequently applauded for its generosity to its workers and the loyalty it engenders in its customers. Based on theoretical and empirical evidence from a broad range of fields including labor economics, management economics, sociology, and economic psychology, and on Costco’s advantages in areas including employee turnover, customer loyalty, reputation, and community relations, it is reasonable to conclude that adherence to a conscious business model is a mechanism for profit maximization.

Comments

Senior thesis completed at Trinity College Hartford Connecticut for the degree of Bachelor of Science in Economics.

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