Tag Archives: Charles Koch

The Best Book of 2019 – Kochland

26 Dec

By Thomas Ultican 12/26/2019

This may be the finest book thus far in the twenty-first century. Kochland; The Secret History of Koch Industries and Corporate Power in America is the second book by former agribusiness reporter for the Associated Press, Christopher Leonard. His first book, The Meat Racket; The Secret Takeover of America’s Food Business received rave reviews; however, Kochland is uniquely special. It is an economic history of America since 1967 that shows the deep changes in our economy that have given rise to a new kind of capitalism. Kochland is told through the lens of Koch Industries whose “annual revenue is larger than that of Facebook, Goldman Sachs, and US Steel combined.”

Leonard weaves an epic tale of brilliance, philosophical intransigence, greed and ruthlessness. Over almost 600 pages, this enjoyable read clearly elucidates many of the troubling outcomes from the last 50 years like the rolling blackouts in California and the destruction of the labor movement.

Fred Koch, the family patriarch, graduated in Chemical Engineering from Massachusetts Institute of Technology (MIT) in 1922. In 1927, he won a patent for an improved petroleum refining process. Do to legal issues surrounding his patent, Fred ended up working in Stalin’s Russia between 1929 and 1932. This experience informed his extreme anti-communist views. He later joined with Robert Welch and a group of businessmen to establish the virulently anti-communist John Birch Society. In 1960, he published the pamphlet “A Businessman Looks at Communism” in which he claimed that the National Education Association was a communist front organization and that public school books were filled with pro-communist propaganda.

In 1961 Fred convinced his son Charles to leave his new job at Arthur D. Little, Inc. and come back to Wichita to work for the family business. Charles went to work there after an impressive career at MIT earning a BS in general engineering 1957, an MS in nuclear engineering 1958 and an MS in Chemical Engineering 1960.

Kochland is also the story of Charles Koch. In 1966, after five years working for his father, he became the CEO of the company then known as Rock Island Oil & Refining Company. After his father Fred died in 1967, Charles took a disparate set of assets – a cattle ranch, a minority share in an oil refinery and a gas gathering business – and stitched them together into the company the family renamed Koch Industries as a tribute to their father. Today it is the second largest privately held corporation in the world. Largest.org lists Cargill, the corporation headquartered in Minnesota and founded in 1865, as the world’s largest privately held company with revenue of $114.7 billion. Koch Industries revenue for the same year came in at $110 billion.

Charles Koch Wichita Business Journal

Charles Koch during a 2014 Interview with the Wichita Business Review

After Charles took over the company, he also started reading everything he could about what made people tick and how societies functioned. Leonard says, “Koch read the work of Karl Marx and other socialist thinkers. He read books on history, on economics, on philosophy and on psychology.” When he was a boy, his father had impressed upon him the evils witnessed in Russia and a fear of government overreach.

It was the works of Austrian economists and philosophers like Ludwig Von Mises and Friedrich Hayek that attracted Koch. He has been described as a libertarian and a conservative but “classical liberal” is a more apt description. Leonard observed, “Hayek, in particular, put forward a radical concept of capitalism and the role that markets should play in society, and his thinking had an enduring effect on Charles Koch.”

In writing about Koch’s 1974 speech to a Dallas gathering, Leonard noted, “Koch chastised the business community for having been seduced by the thinking behind the New Deal.” Koch declared, “Anti-capitalist feelings in the United States are probably more virulent today than ever before.” He went on to say that business leaders needed to fight back and proposed a campaign based on four elements:

  • Education: Public universities needed to be populated with people who would advocate for free enterprise and do research to support it.
  • Media Outreach: Businesses should appropriately “reward” the media when they promote free markets and withdraw support when they attack them.
  • Litigation: “Announce publicly and vigorously, both as individual companies and through associations, that they will not cooperate with the government beyond the legally compelled minimum in developing or complying with control programs.”
  • Political influence: Koch recommended lobbying and “litigation to affect bureaucratic behavior.” He cautioned that the temptation to game the system through lobbying ultimately undercuts business; therefore it should be a “limited program.”

Leonard reports,

“Charles Koch would remain remarkably true to this basic game plan over the next forty years. The only part that would change significantly would be the ‘limited’ nature of lobbying and campaign contributions. Koch would eventually build one of the largest lobbying and political influence machines in US history. But the rest of the plan was executed almost exactly as he laid it out in 1974.”

The First Big Cash Cow

In 1969, Charles Koch completed a secret plan to go from being a minority share holder to sole owner of the Pine Bend Oil Refinery near Rosemount, Minnesota. He convinced J. Howard Marshall to sell his share in the refinery for stock in the newly formed Koch Industries. He then went to the now minority owner, Great Northern, and convinced them to sell its stake. Leonard says, “Charles Koch saw something in the refinery that others didn’t see.”

Pine Blend

The Pine Bend Refinery – StartTribune Photo

Pine Bend was one of the few refineries in the United States that had access to a special form of Canadian Oil that was very cheap and it was set up to refine the dirty oil. Koch sold gasoline from Pine Blend into a retail market that was particularly expensive. Pretty much all executives at Koch industries call Pine Blend a “cash cow.” This acquisition continuously supplies the Koch machine with cash.

Leonard recounts in detail the decades-long family struggle over control of Koch Industries. During this period Charles refused to take the corporation public much to the chagrin of brothers Fred and Bill. Charles and David came out of the fight as co-owners of the company.

Koch was accused of stealing oil from Native Americans by errantly measuring the amount of crude drawn from storage tanks. They were also cited for breaking environmental protection laws at both their refineries (Pine Blend and Corpus Christy). Koch was gaining a reputation as a criminal corporation.

Koch Industries is infused with Charles Koch’s Market Base Management (MBM) theory. MBM is the common language spoken by all managers and most workers at Koch. It guides everything from trading to labor management to safety. Its glaring failure is the inability to solve safety problems at Georgia-Pacific. Deaths and major injuries are on the rise there. MBM when applied in labor relations is anti-union and creates a difficult high pressure environment for hourly wage earners.

Koch’s trading organizations along with the Koch financed American Legislative Exchange Council (ALEC) were heavily involved in the deregulation of California’s electrical grid and the underlying corruption that led to rolling blackouts across the state.

Koch was also a big players in the derivatives markets that played a central role in the 2008 financial meltdown.

Christopher Leonard chronicles all of these episodes and provides deep insight. He explains how the shift from managerial theory in the 1960’s to agency theory in the late 1970’s had changed corporate governance. His relationships created with scientists, managers, laborers and union officials and the telling of their stories sheds new light on the internal operations of Koch Industries.

He shows how neoliberalism captured both major American political parties and describes Koch’s development of the largest most effective political influence organization in America. Koch constructed his political assets patiently over the past fifty years. Sometimes known as the “Kochtopus,” it includes political organizations like Americans for Prosperity and think-tanks like CATO Institute. When the state based organizations are included, these political pressure entities number into the hundreds.

Koch’s entire corporate structure is always focused on gathering information which is one of the primary reasons under-girding its success. Koch always has an information advantage during negotiations. In the early 2000’s, Koch’s traders started learning about the effects fracking would have on energy markets. Operating under the radar, Koch built an oil superhighway (pipelines) out of the Eagle Ford region of south Texas to its Corpus Christy refinery and a Koch shipping terminal. When fracking caused millions of barrels of oil to start flowing from Eagle Ford, Koch had another “cash cow.”

However, the enormous profits from Corpus Christy and Pine Blend were being threatened by efforts in the Obama administration to fight global warming.

Koch Defeats Climate Change Legislation

Leonard states, “Koch Industries, Exxon-Mobil, and other firms spent millions of dollars to support the idea that there was an ‘alternative’ view about climate change between 1991 and 2009.” In 2009, it was Koch’s political network that undermined and eventually killed the Waxman-Markey “cap and trade” bill, the last major federal attempt to fight the growth in greenhouse gasses causing global warming.

Climate Denier Scientist Paid by Koch

Wei-Hock “Willie” Soon – Harvard-Smithsonian Center for Astrophysics (Greenpeace)

Willie Soon claimed that the variation in earth temperature had to do with changes in the sun’s output. He was lavishly supported by Kock. Soon never mentioned in his 11 papers; the more than $1.2 million dollars he received from the fossil fuel industry. The New York Times reported, “Charles R. Alcock, director of the Harvard-Smithsonian Center, acknowledged … that Dr. Soon had violated the disclosure standards of some journals.”

Head of the Goddard Institute for Space Studies, Gavin A. Schmidt said, “The science that Willie Soon does is almost pointless.”

It was congressman Mike Pence of Indiana who made the final argument on the house floor against Cap and Trade. But it was the Koch political machine that finally killed the bill in the senate. Koch’s intentionally obscured and complex organization led the fight. Their primary target was Republicans who stood against Koch on the issue of climate change. Leonard explains,

“These Republicans were the primary targets for a reason. Koch’s long-term plan was to reshape the Republican party, and these members would be made an example of. The strategy wasn’t necessarily new. But the means that Koch used to pursue were unprecedented.”

“In 2009 and 2010, Koch Industries’ political network created new Republican candidates, seemingly out of nowhere, who rose up and challenged sitting congressmen and senators. Koch’s chosen candidates attacked the incumbents from the right claiming that the Republican Party was insufficiently conservative and too accommodating of the Obama agenda. The overwhelming message was that comprise with Democrats must end.”

Charles Koch and Donald Trump see eye to eye on denying climate change and have forged a path of coexistence if not mutual admiration.

Kochland tells a long complex story that illuminates political and economic developments since 1967. When David Koch died in August, his much younger wife, Julia Flesher Koch, surpassed Alice Walton as the richest woman in the world. Charles Koch turns 85 in 2020. Will the new leadership that will certainly come to Koch Industries chart a less politically authoritarian direction which is not based on Malthusian concepts of social construction?

Twitter: @tultican

Five Decades of ‘MarketWorld’ Education Reform

27 Jul

By T. Ultican 7/27/2019

There has been a fifty-year push to reform education using business management principles. In the period, Harvard Business School has trumped Columbia Teacher College concerning pedagogy. Unfortunately, the results are an unmitigated disaster for most communities and students. This market based endeavor – financed by billionaires – has transformed public schools into non-democratic profit centers. It is the precursor to the ultimate goal of dismantling universal free public education.

The radical right is pushing to privatize everything from policing; to prisons; to schools. They have spread the gospel that governments are incapable of solving problems but businessmen can. In his first inaugural address, Ronald Reagan declared “…, government is not the solution to our problem; government is the problem.” Viewing society as consisting of “makers” and “takers,” these apostles of privatization fear the tyranny of democratic majorities. They strive to make property rights the paramount civil right.

When it came to privatizing school, the right originally tried to use vouchers, but that was a tough sell. Jeffry Henig an Education Professor at Teachers College, “The Walton foundation itself was one of the early organizations to transition from vouchers to charters.” In his AlterNet article Bryant explained,

“Henig believes many conservatives view charter schools as a way to “soften the ground” for potentially more private options, though he isn’t entirely sure “the Waltons view charters as a Trojan Horse for eventually providing vouchers universally.’”

When putative progressive organizations like the Center for American Progress or Democrats for Education Reform promote charter schools they are promoting an anti-democratic and anti-union position. When politicians like Corey Booker and Joe Biden say they support public charter schools, they are in fact supporting the radical right’s privatization agenda. When Bill Clinton eliminated depression era banking rules and “welfare as you know it” plus campaigned for school choice; he was advancing Charles Koch’s ideology.

Two recent books have brought the privatization agenda into sharp relief.

The first book is Democracy in Chains: The Deep History of the Radical Right’s Stealth plan for America by Nancy MacLean. Through serendipitous good fortune, MacLean stumbled onto Nobel Prize laureate James M. Buchanan’s unorganized papers shortly after his 2013 passing. They were in boxes and stacked on tables in his George Mason University cabin. The other more well known American Nobel Prize winning economist from the right is the Milton Friedman. However, MacLean discovered that Charles Koch, the financier of the radical right “bypassed Friedman for Buchanan.

The other book is Winners Take All: The Elite Charade of Changing the World by Anand Giridharadas. He takes the reader inside the worlds of elite philanthropy in New York City and of thought leaders in Aspen, Colorado. He writes,

And what these winners wanted was for the world to be changed in ways that had their buy-in – think charter schools over more equal public school funding, or poverty-reducing tech companies over antitrust regulation of tech companies. The entrepreneurs were willing to participate in making the world better if you pursued that goal in a way that exonerated and celebrated and depended on them.

James M. Buchanan, John C. Calhoun and Segregation

James M. Buchanan grew up in Tennessee. His grandfather had been an unpopular governor of the state; however Buchanan was raised in near poverty. It was his academic abilities that took him from the obscurity of Middle Tennessee State Teachers College to a doctorate in economics from the University of Chicago in 1948. The youthful socialist became a “zealous advocate of market order.” It was at the University of Chicago where Buchanan met Friedrich August Hayek and the Austrian School of Economics.

Writing in Atlantic Magazine Sam Tanenhaus disclosed, “Hayek initiated Buchanan into the Mont Pelerin Society, the select group of intellectuals who convened periodically to talk and plot libertarian doctrine.” After World War II ended, The Mont Pelerin Society was a relatively small group of economists mostly from Europe and the United States who were widely viewed as a fringe group. They were against initiatives such as social security, universal health care and public education. The title of Hayek’s 1944 book The Road to Serfdom encapsulates their antipathy to any government social endeavors.

Professor MacLean, who is a historian from Duke University, compared Buchanan’s economic ideology with John C. Calhoun. Calhoun was a son of the antebellum south, a senator from South Carolina and a Vice President of the United States. MacLean quotes him stating, “A ‘government based in the naked principle that the majority ought to govern,’ was sure to filch other men’s property and violate their ‘liberty.’” Calhoun was also a leading defender of slavery. In his most famous speech he said slavery is “instead of an evil, a good–a positive good.

Buchanan and Calhoun

Buchanan’s first plumb teaching assignment came at the University of Virginia in 1956. This was also when the “massive resistance movement” to Brown versus the Board of education and desegregation of public schools in Virginia was heating up.

In 1959, Buchanan joined with another new hire at the university, G. Warren Nutter (who later became a key Goldwater advisor) to write “The Economics of Universal Education.” They argued that the root of the desegregation problem was that “state run” schools had become a “monopoly” that should be broken by privatization. They said if the state sold off their school buildings and equipment, they could limit their involvement in education to setting minimum standards. Then all kinds of schools might blossom.

Since MacLean’s book was published there has been some push back against her tying Buchanan and his paper to the “massive resistance movement” saying he did not involve himself in desegregation politics only in the economic issues of education. However, Buchanan and Nutter did state in their paper, “Every individual should be free to associate with persons of his own choosing.” In any case, schools in Virginia were closed. Black children stayed home while white children attended tax-subsidized private schools. In Prince Edward County, schools were locked closed from 1959-1964. MacLean says that for Buchanan segregation was just a side issue in his life-long libertarian pursuit.

Murray Newton Rothbard was an American economist of the Austrian School and a political theorist whose writings and personal influence played a seminal role in the development of modern right-libertarianism. MacLean discovered “Murray Rothbard encouraged Koch to study Lennin.” Not Lenin’s economics but his methods for advancing an unpopular ideology. On this point MacLean noted, “At a 1973 March log cabin meeting Buchanan stressed the key thing moving forward was that ‘conspiratorial secrecy is at all times essential.’”

In 1978, I saw the Communist Workers Party takeover the Iron Workers Union at National Steel and Ship Building Company (NASSCO) in San Diego. When watching the development of the radical right for the past few decades, similarities with the tactics of communist movement were unmistakable. Both movements are secretive, anti-democratic and motivated by extreme economic theory.

MacLean states, “The Mont Pelerin Society cause since the 1950’s is the end of public education.

Killing Public Education

In 1978, Congressman Ronald Mottl D-Ohio 23 introduced a bill promoting education standards. It was the first time a bill was proposed that amended the 1965 education law to promote a particular theory of education. Mottl’s bill went nowhere like another similar bill (H.R.371) introduced the next year by his colleague Tennyson Guyer R-Ohio 4. However, these were the first harbingers of education standards that emulated business practices.

In 1983, the Reagan administration produced the infamous “A Nation at Risk: The Imperative for Educational Reform.” This polemic was neither factually nor pedagogically well founded. Serious academic research has subsequently shown this non-peer reviewed writing to be the misguided work of amateurs. Its glorification of business practices opened the door for federal control of education and fostered standards based accountability. It made legislation like the proposals introduced by Mottl and Guyer viable.

In Winners, Giridharadas labels – modern social reform based on the belief that business leaders and market forces are the sure way to a better society – “MarketWorld.” He explains,

In an age defined by a chasm between those who have power and those who don’t, elites have spread the idea that people must be helped, but only in market-friendly ways that do not upset fundamental power equations.

Giridharadas shares three criteria for being a “MarketWorld” thought leader speaking at the Aspen Institute or the Clinton Global Initiative or the main TED talk stage. Thought leaders should:

  • Focus on the victim, not the perpetrator.” Condemning a perpetrator is a “win-losey” solution not a win-win.
  • Personalize the political.” If you want to be a thought leader and not be dismissed as a critic, your job is to help the public see problems as personal and individual dramas rather than collective and systemic ones.
  • Be constructively actionable.” … “People, especially the winners who shape tastes and patronize thought leaders, want things to be constructive, uplifting, and given to hope.

He gives examples including this one:

“What the thought leaders offer MarketWorld’s winners, wittingly or unwittingly, is the semblance of being on the right side of change. … Take, for example, the question of educating poor children in a time of declining social mobility. A true critic might call for an end to funding schools by local property taxes and the creation, as in many advanced countries, of a common national pool that funds schools more or less equally. What a thought leader might offer MarketWorld and its winners is a kind of intellectual counteroffer – the idea, say, of using Big Data to better compensate star teachers and weed out bad ones.”

Data shows that “MarketWorld” and libertarian philosophy has damaged public education and harmed all but the top 10% of wage earners in America. Giriharadas shares the following data table information and notes, “One hundred and seventeen million people had been completely shut off from economic growth since the 1970s.

Earning Level 1980 2014
Top 0.001 % $17,000,000 $122,000,000
Top 1% $428,000 $1,300,000
Top 10% $58,000 $116,000
Bottom 50% $16,000 $16,200

It is possible that Charles Koch and “MarketWorld” think this is a feature. To me, it looks like a powerful data set that says we need an empowered Government to protect Americans from ravenous billionaires and their self-serving anti-public education and anti-democratic views.

Twitter: @tultican