The stock and bond markets fared well during the third quarter as the expectation for—and then confirmation of—a Fed interest rate cut sustained investor confidence. For the quarter, U.S. large-company stocks rose 5.9 percent, small-company stocks were up 9.3 percent, and foreign stocks rose 7.3 percent. Because bond values tend to move in the opposite direction as interest rates, broadly measured, bond values rose 4.6 percent.
The Fed had slashed interest rates to near zero to stave off economic calamity as the COVID-19 pandemic took hold in March of 2020. By March of 2022, the Fed acknowledged that the low-interest-rate environment and other factors had begun to dangerously stoke inflation, and it began a campaign of rate increases to rein in inflation. In September, the Fed announced a stout interest rate cut of one-half of one percent—or 50 basis points—initiating a long-awaited change of Fed interest rate policy. Most economists expect this cut to be followed by additional rounds later this year and into next. The goal of doing so is balancing the risks between moving too slowly, which might spark a recession, and moving too quickly, which might allow inflation to reemerge.
The coming year will mark the fifty-fourth anniversary of a landmark article published in The New York Times by the economist Milton Friedman titled, “The Social Responsibility of Business is to Increase Its Profits.” This article, originally appearing as part of his 1962 book Capitalism and Freedom, was issued as a conservative response to a widening interest in understanding the appropriate role of business in a society relying heavily on a shared and finite supply of natural resources, as well as a moral obligation for social equity. As the title would suggest, he argues that “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game.”
Following publication, Freidman’s philosophy spread and was widely—but not entirely—adopted in both business and business schools in subsequent years. Followers were attracted by its simplicity. Designing and executing business strategies to meet the exclusive objective of growing profits is a more fundamental exercise than to include social and environmental considerations. Some shareholders of publicly traded companies applauded the approach as well, though others realized that we live in a complex world and grappling with its realities is rarely simple. Moreover, to believe that any endeavor should be pursued without an ethical framework is to invite abuse, manipulation, and eventual demise. Socrates himself tells us ethics are the foundation of justice, and is not our economic system now characterized by injustice in the form of stark disparities in the distribution of economic opportunity and resources?
Freidman’s notion relies on the assumption that any efforts toward corporate responsibility will come only with financial costs or operational inefficiencies, and that these will reduce profits and therefore decrease shareholder value. This is an incomplete view at best. And Harvard Business Review, in its 2012 article, “The Social Responsibility of Business Is to Increase … What Exactly?” suggests that it isn’t as simple as Friedman’s theory suggests. Businesses that ignore ethical considerations can face employee or customer backlash, which can ultimately harm reputations and profitability. Such companies can also face regulatory and legal risks—though proactively engaging in corporate responsibility can mitigate these risks and avoid penalties.
Likewise, consumer preferences have long been trending toward support of positive corporate practices and making purchases based on a company’s social and environmental reputation has become commonplace. There are more examples but suffice to say that the profit picture for any business in the modern world is complex and shaped by much more than the costs that might be associated with corporate responsibility. Corporations must maintain profitability to survive, though this is entirely consistent with ethical business practices.
Global challenges—such as climate change and inequality—require collective action from businesses, governments, and society. Companies that address these issues contribute to global well-being and stability, which in turn supports a healthier business environment.