'Compassion' has its unintended consequences
In 2010, Panera Bread launched a nonprofit called Panera Cares, a set of stores around the U.S. operated on a "pay-what-you-can basis." The underlying assumption was that customers of means would pay more to support customers with less -- or even no -- money. The company opened five Panera Cares stores in St. Louis; Portland; Chicago; Dearborn, Michigan; and Boston. All had closed by February of this year.
Several articles and at least one business case have been published on the Panera Cares initiative, and different authors draw different conclusions. In Fast Company, for example, author Adele Peters characterizes the failure of Panera Cares as "a blow to the idea of conscious capitalism." Vox's assessment was more concrete: Patrons complained about the smell of unbathed homeless people in the stores, and employees were not qualified to handle behavioral problems and drug use in the bathrooms.
In the Journal of Business Ethics, business case writers Giana Eckhardt and Susan Dobscha mischaracterize customers' complaints but note that both "food secure" and "food insecure" patrons were unhappy with the Panera Cares experience. Some customers felt pressured to pay more than they felt they could. Others felt taken advantage of by "free riders." Those in need of free food felt profiled and singled out. And yet the authors claim that this was "not a managerial story of misguided execution."
To the contrary, that's exactly what it was.
Those of us who teach entrepreneurship could have seen this coming -- a textbook case of a business model based upon untested assumptions and "expert-centric" versus "user-centric" thinking. Panera CEO Robert Shaich launched Panera Cares based upon what he thought people would do. Had Shaich opened one Panera Cares store, tested his assumptions and adapted the venture on the basis of what he learned, he could have avoided multiplying those same issues in every Panera Cares store around the country and potentially even ended up with a successful venture. As it is, the entire venture failed; Shaich is disillusioned; and those studying the experiment are drawing false conclusions about humanity and capitalism.
Panera Cares was run by a private company, so after losing enough money, all of the stores were forced to close. But what goes awry in the private sector often goes awry in public sector as well. The critical difference is that public sector failures are almost inevitably attributed to a lack of money. "We just need to raise taxes!" the response goes.
That is a horrific error. Public policies constructed on failing assumptions will collapse just as surely as private companies will. Much more money will have been thrown away, and -- perhaps most distressing -- the underlying problem will not have been solved.
Homelessness in California is a perfect example.
Michael Shellenberger, an energy and environmental writer for Forbes, published a brutally honest and frankly shocking article just three weeks ago. According to Shellenberger, progressives (and he counts himself among them) bear much of the blame. "What happened in California isn't the first time that we progressives let our idealism get the better of us," he says.
He continues: "How did things get so bad in California? The state has long prided itself on being humanistic and innovative. It is home to some of the world's largest public health philanthropies, best hospitals, and most progressive policies on mental health and drug addiction. The Democrats have a supermajority. What went wrong?