Koch Industries’ interlocking web of companies, foundations and front groups touch everything from the plastic cups you put out at parties, the gasoline you pump into your car, the votes you cast at the ballot box and even the wages your employer is willing to pay you. In short, this privately held enterprise, owned by two brothers, exerts arguably more influence over your life than the government they and their network of like-minded billionaires have been trying to undermine for over forty years.
Through theft, deception and secrecy the Koch’s have built a capitalist juggernaut and infiltrated the institutions of democracy in order to propagate its plutocratic designs upon the country; availing itself of a fringe political ideology rooted in the antebellum South, they have wrought environmental devastation, eviscerated the middle class and have managed to shift the political discourse in America to favor their self-serving, radical free-market policies.
Despite appeals to notions of liberty and so-called “sound economics”, at the core of the Koch business philosophy is little more than a justification for rapacious greed and a pathological inability to share. Those of us downstream from their unimaginable wealth are left to deal with the consequences of their massive, unchecked and wounded egos. But, it is only by dispensing with the pseudo-academic, quasi-legal arguments crafted by the purveyors of Koch’s proto-fascist gestalt, that we can begin to see the contours of their totalitarian dream.
Spiking the Water
In April 2014, the city of Flint, Michigan switched its water supply from Lake Huron to the contaminated Flint River. By June people were dying from a Legionnaires-associated disease caused by bacteria found in the water supply. The crisis became a national scandal as more people got sick even as municipal leaders claimed the water was safe to drink.
Five years later, Flint is still reeling. A fact recognized by the city’s new Mayor, Karen Weaver, who swept into office on a wave of anger and resentment. “It’s a community that’s still dealing with the trauma and the aftermath”, she told the New York Times “of having been poisoned at the hands of the government.”
But, the government was actually the first victim of this tragedy. Hidden in the depths of the rancid waters that killed twelve people and sickened nearly a hundred more, none other than the Kochtopus and its vast political influence machine thrashed about.
In the state of Michigan, it exerted considerable influence in the governor’s office through the Koch-funded and Koch-staffed think tank, Mackinac Center, which had been pushing for legislation that would place any community facing a “financial emergency” under direct state control and, in turn, hand over extraordinary powers to emergency managers. Among the powers accorded to these unelected bureaucrats was selling off local resources to private companies, outsourcing services and changing municipal suppliers at will.
True to the words of one state governor, who stated unequivocally, “When the Mackinac Center speaks, we listen”, their legislative recommendation made it into law and many cities were placed under this regime. More than half of the state’s black voters would come to be governed by such managers. The one assigned to oversee Flint made the fateful decision to switch the city’s water supply to “save money”.
Mind of the Kochtopus
The vital role Koch played in the Flint water crisis received little, if any, media attention because, as in this case, most of their machinations are carefully concealed behind front-groups, innocuous-sounding foundations and ostensibly noble causes.
Charles Koch began building this network, dubbed “Kochtopus” for its monstrous reach and multiple tentacles, almost as soon as he took the reins of Koch Industries in the 1970’s. His first mentor was a man by the name of F. A. “Baldy” Harper, author of a “free market primer” called “Why Wages Rise” in which he derides unions, public schooling and any kind of labor protection laws. A founding member of the Mont Pelerin Society along with Koch’s other idols F.A. Hayek and Edwin Von Mises, Baldy Harper would go on to found the Institute for Humane Studies with Koch’s generous and permanent funding.
The Mont Pelerin Society, in fact, would be the fountainhead for many beneficiaries of Koch money. Formed in 1947, the Society was the result of an historic gathering in Switzerland of free-market intellectuals led by their “guru”, F. A. Hayek, prophet of the rich propertied classes in a time when the rising power of unions and growing regulatory framework threatened to undercut their position. The infamous Chicago School of economics and its most polarizing figure, Milton Friedman, was a direct outgrowth of this post-war egghead club.
Friedman, however, was not radical enough for Koch and considered his approach to economics too technical to fulfill the more fundamental, philosophical and transformative changes Charles Koch wanted to bring about in America, turning his attention to other branches of the Mont Pelerin tree.
He found what he was looking for in another University of Chicago grad, who studied under yet another Mont Pelerin founder.
The Dictator’s Messiah
James M. Buchanan was more concerned with the political and social aspects of economic theory than with pesky numbers or statistics.
In 1956, he submitted a private proposal to the president of the University of Virginia for the creation of a department for Libertarian and conservative studies, misleadingly called the Thomas Jefferson Center for Political Economy and Social Philosophy. Buchanan was motivated to create his department by the watershed Supreme Court decision of Brown v.The Board of Education two years earlier, which put an end to racial segregation in the public school system.
The entrenched Southern White elites that ruled Virginia, led by one of the most powerful Senators in U.S. history, Harry F. Byrd, took the court’s decision as an affront and resisted desegregation with all the means at their disposal. Buchanan’s Center at UVA aimed to subvert what he and the Virginian ruling class perceived as federal incursion into states’ rights – a more palatable framing for their real problem: democracy.
The pull of history and strong resistance from Virginia’s White middle class doomed Buchanan’s project. The inevitable demise of the Byrd organization and the turnover of the university’s leadership eventually forced Buchanan to find refuge in a regular faculty position at UCLA, then a hub of radical right wing thought.
Buchanan’s ideas were popular enough in the tight knit circles he moved in, but they had yet to reach the broader audience he needed in order to generate the momentum required for them to actually affect policy. He began to acquire more widespread recognition after the publication of “Academia in Anarchy”, which put forward ‘solutions’ to expressions of social consciousness among the country’s student body. Along with his co-author, Nicos Devletoglou, he would propose remaking colleges and universities as “industries in which individuals sought to maximize their personal advantages and minimize their costs”. The idea was to eliminate dissent by turning higher education into a business and eliminating the humanities from the curriculum.
The book propelled Buchanan into the international spotlight and he would soon be heading back to Virginia to form a new department. Located in the less prestigious Virginia Polytechnic Institute, better known today as Virginia Tech, his Center for Public Choice was where he would first meet Charles Koch and become a regular recipient of the billionaire’s generosity.
Soon enough, Buchanan would have a chance to prove just how useful his anti-democratic vision of government could be to a select group of private interests and the Chilean Minister of Finance, Sergio de Castro, who hosted the American academic for a week of exclusive seminars in Augusto Pinochet’s military dictatorship. The main purpose of the five formal lectures he delivered during his 1980 visit was to explore how his “public choice” theory of economics could inform their new constitution.
Buchanan was credited – though not publicly – with providing the legislative tools the dictator needed to cement the governance structure he was running on behalf of the propertied classes. De Castro’s “modernizations” included such Buchanan staples as school vouchers, evisceration of the public university system, health care privatization and the creation of super majorities in the legislative chambers to make any future changes virtually impossible.
Six years later, James Buchanan would be awarded a Nobel Prize in economics and as his star rose, Charles Koch would single him out to lead his most important – and illegal – political operation on the banks of the Potomac. His name would serve to legitimize Koch’s project at George Mason University; very much the crown jewel of Koch’s by then well-established, multi-pronged political operation.
All About the Business
The engineering degree Charles Koch earned at MIT in 1957 served to sharpen a mind already predisposed to distillation. After his initial resistance, Fred Koch’s second-born settled in his role of heir-apparent and began to break down the parts of the corporation he would eventually rename after his father, selecting the best pieces and putting them back together for a more efficient performance.
He would tinker with it over and over again, reacting to changing markets, governmentally-imposed limitations and the ever-alluring siren call of more profits. Along the way, he would pick up the intellectual tidbits and political and economic theories that best suited his approach, cobbling together a personal business philosophy enshrined in what many a Koch employee would come to learn as Market-Based Management or MBM, for short.
An education in MBM, which some former employees described as a “cult”, was compulsory at the company and embracing its principles was a non-negotiable condition of employment. Ostensibly designed to attract and train free-market thinkers who thrived on the entrepreneurial spirit, Market-Based Management was a collection of tenets devised to produce clones of Charles Koch himself.
As Koch Industries expanded and devoured other gigantic corporations like Farmland and Georgia Pacific, it became harder to sell this glorified employee manual to the swelling number of people on its payroll. But, Koch’s ego and ambition grew along with the company assets. He began pouring more and more money into Libertarian causes and think tanks, as the need to keep the government at bay increased. He would invest in politicians and academics, like Buchanan, who could help him shape the public narrative and deflect negative attention from decidedly unfree market practices, such as the theft of resources from Native lands.
Measure Once, Take Twice
The rocky terrain in northeastern Oklahoma was thought to be of no particular value when the U.S. government relocated the Native American Osage tribe there from their original abode in what had become the state of Kansas. Only a decade earlier, George Bissell and Edwin L. Drake had successfully drilled for oil in Pennsylvania, kick-starting the age of fossil fuel extraction in the United States. The initially worthless land now part of the Osage Reservation soon revealed its rich deposits of crude. Oil leases were issued to the tribe, which oilmen all over the country would henceforth have to rent to gain access to the black gold.
The Osage would reap huge profits from the oil on their land, making them the wealthiest Native tribe in the country – indeed, the richest people per capita in the world. Decades later, Osage tribe members were driving around in expensive cars, wearing furs and exhibiting other signs of conspicuous consumption made possible by the ever-increasing dividends resulting from the oil gushing from the ground.
The story of the Osage takes a tragic but not so unexpected turn, as they began to be targeted in a criminal conspiracy to assassinate them and take over the fortune beneath their feet. The tribe would survive the ordeal with the help of nascent FBI and its fledgling director, J. Edgar Hoover who eventually cracked the multiple-murder case.
During the 1980’s, the Osage and the FBI would have to deal with a far more cunning and dangerous enemy in Koch Industries.
Koch President, Bill Hanna, sent out a company-wide memo instructing employees to “shred”, “burn” or otherwise destroy by “some equally effective method” any records that could benefit competitors. He did so in the midst of a U.S. Senate investigation into allegations of deliberate oil mismeasurement. The final report found Koch culpable of systematic oil theft.
For years, Koch had defrauded crude suppliers through manipulation of industry-standard oil gauging methods. They developed their own step-by-step procedure and drilled it into their oil gaugers with MBM-infused intensity with the understanding that their job depended almost exclusively on proper adherence to it. Gaugers were encouraged to always fudge the numbers they kept when siphoning crude from their suppliers’ tanks and loading it onto Koch’s barges. The practice was known as “cutting the top” and “bumping the bottom”, which simply meant that they took more than what they paid for.
This technique put millions of barrels of free oil into Koch’s refineries over the years. Among their victims were the Osage in Oklahoma, who they identified as the ideal target for a public relations campaign Koch mounted to undermine the Senate’s findings and stave off a criminal inquiry.
Understanding that the Osage had limited accounting expertise, Koch sent a former company trader, Ron Howell, to perform an ‘audit’ of the oil lease receipts against their own to prove that claims of oil theft were baseless. Howell came back with the incredible assertion that not only had Koch not stolen any oil, but in fact, had overpaid. In March, 1990, the Osage Nation News ran a story in which Osage chiefs cleared Koch of wrongdoing, based on the fraudulent audit results. Their statements were carried by the Daily Oklahoman soon after and Senator Bob Dole, beneficiary of almost a quarter of a million dollars from Koch throughout his career, submitted the article into the Senate record.
The criminal case never materialized. The FBI’s investigation was abruptly dropped by incoming U.S. Attorney, Timothy Leonard, a man with no relevant experience who was appointed by Oklahoma Senator and close Koch ally, Don Nickles.
By 2016, Koch Industries would have grown into a fossil fuel behemoth with an annual revenue “larger than Facebook, Goldman Sachs and U.S. Steel combined”. Its insidious and calculated moves in local and state-level politics, academia and the law changed the political landscape of America. Their network would be instrumental in financing and amplifying the Tea Party zealotry. It would bring anti-union, anti-worker’s rights politicians like Scott Walker into the national spotlight. The radical right-wing rantings of Glenn Beck were written by the Koch-funded FreedomWorks, a tax-exempt group founded by former Republican House majority leader, Dick Armey. Beck would collect as much as $1 million dollars annually from the organization to spew his brand of free-market lunacy.
The Heritage Foundation, Cato Institute, The Reason Foundation, The Tax Foundation, The Club for Growth and Americans for Prosperity are just a partial list of the vast, multi-tiered operation initiated and maintained by the Kochs and their billionaire friends to shift the focus of political and economic discourse away from the majority and centering it around the interests of the 0.01 percent. The wealthy oligarch class coalesced around Charles Koch’s leadership to stage a coup on the rest of the country, couching their inhuman greed in populist rhetoric meant to seduce the masses of people they are intent on exploiting.
Along the way, Koch Industries’ shameful record of ecological destruction, subversion of democracy and death would soon be revealed as their true legacy.
The oil leases on the Osage territory began to be issued in 1912, drawing oil magnates from around the world to bid fortunes under the so-called “Million-dollar Elm”, where an auctioneer sold off the rights to extract from the wells. The tribe’s sudden stroke of luck didn’t come with the usual benefits associated with the accumulation of massive wealth familiar to most Americans. Much of it was kept behind a wall of racist paternalism expressed through government-appointed guardianships, that assigned White men to oversee the expenses of the tribal members and the power to cut them off at their discretion.
It was the sort of draconian government overreach that Koch and the various organizations he funded to promote the idea of limited government might uphold as examples of the dangers he was fighting to avert. But, that would have been empty rhetoric like most of the arguments put forth by many of his political front groups like Americans for Prosperity or Citizens for a Sound Economy. The endgame for Koch and his clique of preposterously wealthy (mostly) men was a government stripped of all responsibility beyond the responsibility to protect their property.
Among the bidders gathered under the tree in Pawhuska, Oklahoma in the 1920’s was a representative of the Gulf Oil company, owned by the Mellon clan, one of the original robber baron families and pioneers of the use of philanthropy as both a means of tax-avoidance and anti-government messaging. One of the heirs to the Gulf Oil, Mellon banking fortune would become one of the country’s biggest backers of radical right wing ideology and a strategically important partner to Charles Koch’s own efforts.
The Silverspoon Radical
Richard Mellon Scaife never gave any interviews or public speeches, but he exerted incalculable influence over America’s public affairs through the multiple foundations he and his family set up.
Inheriting an obscene amount of money at the age of 26 is probably not the easiest thing to deal with for even the most level-headed youngster. But, by all accounts, Richard Scaife was leading the kind of dissolute life most of us expect the scion of inter-generational wealth would. Kicked out of the Deerfield Academy prep school at 14 for drinking, his reputation for alcohol-induced benders would follow him to Yale University, which would also expel him for it.
After his father died in 1958, Scaife assumed the role of financial manager for the fortune passed on to his mother, Sarah. She would create several trusts, continuing the family tradition of using non-profits as tax shelters. Eventually, Richard would consolidate all of the foundations under the umbrella of the Scaife Family Charitable Trusts, which would be used to disburse hundreds of millions of dollars to radical right organizations, politicians and causes.
The most important of these may well have been the Institute for Contemporary Studies (ICS), based out of California. This Scaife-funded think tank initiated a slew of projects meant to influence policy. One of these sought to learn what was being taught in pre-collegiate economics classes and propose more free market-friendly curricula. Another put future president Ronald Reagan in front of every high school student in the state’s eleven hundred school districts via PBS.
Reagan’s deep ties to the ICS can be traced to the presence of Edwin Meese III on the foundation’s board. Meese, who would later serve as Reagan’s Attorney General and, arguably, his most trusted advisor, was among the invitees to Jim Buchanan’s 1973 unveiling of the Virginia academic’s “Third Century Project” outlining the way in which corporate America would transform the nation’s courts. Just a week earlier, Buchanan had presented his plan to another room-full of sympathetic business men. “Conspiratorial secrecy”, he warned them, “is at all times essential”.
The institute would soon count multinational corporations such as Exxon, IBM, Chase Manhattan Bank, Shell and Texaco among its ranks, making it one of the most influential think tanks in the nation.
Rise of the Oligarchs
In 1973, the brand new Environmental Protection Agency took aim at the Olin Corporation, which had started nearly a century earlier as a mine explosives and small arms company. Government contracts during World War I and II would greatly buttress its bottom line and the family-owned concern would go on to form a huge conglomerate producing everything from Winchester rifles to rocket fuel.
Its chemical division had a large rap sheet of environmental pollution and found itself being sued by the Environmental Defense Fund, the National Wildlife Federation and the Audubon Society for releasing DDT-laced effluents into a wildlife preserve. Three years before the EPA came down on the company, they were charged with dumping mercury into the Niagara River and were later found to have falsified records showing it had dumped 66,000 tons of toxic waste into a Niagara Falls landfill.
The Olin Corporation’s criminal negligence and outright disregard for human or environmental health spanned decades. But, as public outcry around these issues began to grow and regulations were put in place John M. Olin – who was not even running the company by then – created the Olin Foundation to, in his words, “see free enterprise re-established in this country. Business and the public must be awakened to the creeping stranglehold that socialism has gained here since World War II.”
Olin, along with many other members oligarch class, were galvanized by the infamous Powell memo calling for American business owners to mount a “counterrevolution” against what they saw as an existential threat. Powell, a former director of the Phillip Morris tobacco company, laid out the game plan in his 5,000-word manifesto, which identified the judiciary system as a central focus of their attack strategy. Nixon would appoint Powell to the Supreme Court just two years later.
The Olin Foundation immediately began funding projects focusing on the radical transformation of the American justice system. Among the first the Olin Foundation funded was a program run by an obscure law professor at the University of Miami, Henry G. Manne. Manne was his bringing corporate-oriented and cost-benefit analysis approach to regulation in his Law and Economics Center in the then marginally known campus in Coral Gables, Florida.
Charles Koch, in particular, would find Manne’s ideas very appealing as they dovetailed so perfectly with his own master plan.
Koch’s Law Manne
Charles Koch was following in the tradition of his covenant ideology forbearers. He saw his project to transform American politics akin to the Protestant Reformation, casting himself in the role of Martin Luther declaring that like the rebellious cleric, he stood firm against the established order. “I can do no other”, Koch boasted in a 1999 speech.
By that time, the project had made great, if largely unnoticed, strides. Henry G. Mane was Dean of Koch’s pseudo-academic operation at George Mason University. Over the previous two decades, Manne had been so successful with his Law and Economics program funded to the tune of millions of dollars by the likes of the Olin Foundation, Charles Koch and U.S. Steel, that by the middle of George H. W. Bush’s only term in office, 2 out of every 5 sitting federal judges had participated in Manne’s training sessions, applying free market economics to legal decision-making.
The “Henry Manne Camp”, which counts current Democratic presidential candidate and reportedly reformed liberal Elizabeth Warren among its alumni, doled out rich honorariums to legal scholars to write papers with his particular twist on legal questions that would be published in legal journals, spreading the meme throughout the profession. More than 600 institutions would end up sending their best legal minds to attend Manne’s intensive two-week courses; typically held in posh tropical locales such as Key West. Some institutions, like the University of Virginia’s law school, adopted Manne’s approach in its entirety.
Koch and Manne identified what they considered the biggest threat to “economic freedom”. Together they determined that the environmental movement constituted the most clear and present danger to their designs as it sought to “control” corporate interests through “governmental regulation of business”. Government-backed health care also represented a danger since it “impaired the normal workings of labor markets”.
Tax policy, public education and feminism also sent shivers down their spines. The first because of the “inevitable egalitarian instincts” exhibited by “modern” democracies; education had to be curtailed because of the “community values” they considered to be “inimical to a free society”; and finally, feminism was too socialistic for their taste.
Bill Clinton’s re-election motivated Koch to take things up a notch and neutralize these threats, bringing the Nobel prize-winning James Buchanan directly into his operation. After years of funding Buchanan’s work through his various foundations, Charles Koch put up $10 million dollars to set up the James Buchanan Center at George Mason University. The new department would be an amalgam of Buchanan’s Center for Public Choice that the laureate had run at Virginia Tech and Koch’s long-time political hatchet man, Robert Fink’s Center for the Study of Market Processes.
The board of visitors would include William Kristol and Dick Armey, while Edwin Meese III sat as the board’s rector. Buchanan would ultimately be pushed out after getting wind of the illegal nature of the Center’s work. Ostensibly a philanthropic endeavor, registered as a 501 3(c) non-profit legally barred from engaging in politics, the Buchanan Center at GMU was being used as a political lobbying operation led by Koch operatives.
Koch Industries was growing at a frenetic pace, swallowing competitors and violating so many laws in the process, that attacking the system prosecuting them under these laws and imposing multi-million dollar fines on them made perfect business sense.
The Altar of Doom
In due course, the political discourse around the country would begin to reflect the radical, ant-government viewpoints espoused by the foundations and initiatives sponsored by the Kochs and partners like the DeVos family of the Amway fortune, the Coors brewing empire and many others.
Charles Koch issued his battle cry in 1978. “Our movement” he intoned, “must destroy the prevalent statist paradigm”. In the space of two decades his revolution had managed to seep into the national consciousness and its insane tenets would begin to spew from the mouths of his minion politicians. Thom Tillis, a U.S. Senator from North Carolina who owed his post to the Koch machine, wanted to do away with laws compelling restaurants to make employees wash their hands since, he claimed, “the market” would “take care of that”. The press was not immune, either. An editorial board member of the Wall Street Journal took a Koch-infused line against the need for public health officials, expressing her opinion that testing for lead levels in the blood of children was nothing more than an excuse to justify their jobs.
If we were to really look for justifications, we could simply take a closer look at the egregious practices Koch Industries has been employing in their pursuit of profit and unfettered growth. The lawsuit brought against them in 1995 by the EPA for spilling over 12 million gallons of oil across six states as a result of faulty pipelines is only one of many incentives this enormous corporation has to subvert the law and, the tremendous wealth at their disposal has allowed Charles Koch to go beyond mere court battles to burning the U.S. code itself upon the altar of free markets.
From the time Charles Koch took control of the company his father built, he declared war on the working class. The most profitable asset in Koch Industries’ early years was the Pine Bend refinery, whose massive profitability was made possible by several extraneous factors including its geographical location, government policy on the importation of Canadian crude, loopholes in the Clean Air Act and government subsidies. It also had the benefit of being run by a highly-skilled, unionized workforce that was operating the plant before Koch acquired it in full.
The local chapter of the Oil, Chemical and Atomic Workers Union, OCAW 6-662, had negotiated the framework for the conditions of their employment at the Pine Bend refinery between the 50’s and 60’s. The OCAW was a powerful union in a heavily unionized state, buttressed by interlocking loyalty oaths with other big unions like the Teamsters. But, the livelihoods of working class families and backbone of the local economy were not part of Charles Koch’s plans to streamline his business and within months of acquisition, he hired Bernard Paulson to take the union down.
Paulson had been managing Costal Oil & Gas down in Corpus Christi, Texas when Koch brought him on board to Minnesota specifically for his expertise in dealing with organize labor. Paulson started at Pine Bend in 1971 and only months later, in the early Spring of ‘72, he laid out his first trap. He scheduled OCAW local president, Joseph Hammerschimdt, to work on Easter Sunday knowing full well the irascible leader of the proud chapter would refuse. Paulson fired Hammerschmidt on the spot declaring war on the union.
The OCAW local’s contract was set to expire in the Fall of 1972 and when negotiations started, it was Hammerschmdit himself, in his capacity of chapter president, who was sitting across Paulson when the latter presented him with the new work rules rewritten by Koch Industries. Take it or leave it, Paulson informed the outraged OCAW representatives. In January, 1973, the men walked off the job and went on strike.
Paulson had already gone over the strategy with his boss and immediately put a non-union “skeleton crew” to work in the posts vacated by the OCAW workforce. He put a cot in his office, stockpiled food and ordered the cafeteria remain open 24 hours. Koch’s union-buster was hunkering down for the long haul, but the bad omens didn’t wait to make their appearance. On the very first night of the strike, a large furnace that superheated oil exploded after leaks failed to be detected over the previous several hours.
Two months later, a saboteur pushed the throttle on a train diesel engine parked near the refinery, which had tracks running through the middle of it. Tragedy was averted by the derailing mechanism and the engine flipped over before crashing into the very large and very flammable refinery stacks and gasoline tanks. Incredibly, no one was killed in either incident.
As the strike dragged on, Paulson was able to leverage Koch Industries’ extensive contract work needs to induce the Teamsters to break the picket line. Teamster drivers accepted to carry out Koch’s deliveries in the midst of the strike, severely weakening the OCAW’s position.
After nine months, the strike ended with the union accepting a far less favorable deal than the one they once had. Charles Koch emerged victorious and imposed new work rules like mandatory overtime and a laughable grievance process that settled any successful claims by allotting overtime so workers could “earn” back the money they were owed. In addition, skill-based assignments were eliminated altogether; foreshadowing a developing trend in American workplaces that demanded wage laborers carry out tasks they were not necessarily trained to do.
A Future for Nobody
Koch’s contempt for workers would become a feature of their management style and as Charles Koch made inroads into the legal system to further erode workers’ rights, the company’s ability to impose onerous working conditions on its many factory floors became that much easier.
The 2003 acquisition of Farmland’s fertilizer plants revealed as much and crystallized the reality that had by then fully manifested as a result of the American oligarchy’s efforts to return to the days of robber barons and corporate monopolies.
Farmland Industries was a hugely successful co-op owned by thousands of farm families, which had thrived for three quarters of a century. They all shared in the profits and voted on the decisions that affected the business. Koch president, Dean Watson, derided the cooperative as “socialism” during the acquisition process. The bastion of modern agriculture had suffered a reversal of fortune during the natural gas shortage in the 90’s, forcing them to auction off their immensely profitable fertilizer plants.
Koch was already a large producer of a key component in industrial fertilizer, nitrogen. The purchase of Farmland’s network of fertilizer plants, which ran all along the corn belt between Iowa and Nebraska, was completed for the relatively paltry sum of $290 million dollars and put Koch at the center of America’s agricultural universe. The co-op model was summarily dismissed as Koch executives took over Farmland headquarters and asserted control over yet another vital aspect of American life.
Not content with this, Koch also flexed their political muscle to deregulate the energy markets themselves, putting them in a position to profit from virtually every link in the chain of basic necessities and holding it hostage to market forces.
Opening the Gates of Hell
Joseph Coors, of the brewing family fortune, wrote a letter to his senator, Republican Gordon Allot, after reading the Powell memo with a seemingly unlimited offer to fund “conservative causes”. Allot’s press aide was a man by the name of Paul Weyrich who immediately took advantage of the wealthy man’s generosity and founded The Heritage Foundation with Edwin Feulner Jr., a graduate of Wharton.
Both men had been intent on creating a policy-crafting organization that wouldn’t shy away from pushing legislation directly, as most think tanks did. Originally named Analysis and Research Association, the political influence operation grew to become the only outside organization allowed to caucus with members of Congress. The same year that The Heritage Foundation opened its doors in 1973, Weyrich created the American Legislative Exchange Council or ALEC, with the purpose of mounting legislative battles at the state level around the country. Most of ALEC’s funding came from Richard Mellon Scaife’s foundation, but would eventually count on much Koch money, too.
Koch became a key supporter of ALEC’s national push to deregulate the energy markets, putting his men on the task forces put together by the organization. ALEC’s “model bills” were introduced to many states with barely any modifications and greatly helped Koch Industries partake of the massive fraud that the new energy markets afforded companies like theirs. Pushing the changes along with Koch on ALEC’s task forces were representatives of Enron, which ended up taking the brunt of the press coverage when the chickens came home to roost.
Koch had been trading in the commodities market for years prior. In 1983, when NYMEX introduced oil futures contracts, Koch was well-positioned to take advantage of the seismic change this represented for the way oil was traded on the open market. Ron Howell, the man who years later carried out the fake audit of the Osage leases on Koch’s behalf, was then the head of the company’s oil trading division.
He would retire just two years later in 1985, but not before observing how things were about change. “It was the first time that there was a […] visible market signal for the price of oil”, he told Kochland author, Christopher Leonard. Until then, the price of oil was set over the phone between traders themselves; privately and far away from anyone not intimately involved in the industry. These were also real trades, in that the seller had to deliver the oil to the buyer. Koch had the advantage over independent traders because they already owned the oil and could execute delivery themselves. Oil contract futures, on the other hand, opened the door to the entire financial sector.
The NYMEX price of oil wasn’t the real price of oil. It was a bet on what the price of oil would be at some point in the future and Koch had built an intelligence-gathering operation on its own private trading floor that rivaled anything found in Langley, Virginia. Koch used data gleaned from every other division in their company; they utilized any data they could pry from competitors; they scoured news stories for information and even had a stable of the best meteorologists in the business to get a jump on weather patterns to predict consumption trends.
Charles Koch would bring all of it under one roof as Koch Supply & Trading after George W. Bush broke up the natural gas companies in 2001, spurring the fossil fuel giant to assume the management of the nation’s natural gas infrastructure. The potential profits promised by the new structure separating gas sellers from distributors and consumers were made even more attractive by the invention of yet another financial instrument: derivatives.
Unlike oil futures, which – while deferred – still required delivery of the asset, derivatives were pure bets based on the underlying value of the asset but without actual delivery of the asset at any stage of the transaction. Clinton’s Commodity Futures Modernization Act of 2000 would keep derivatives away from any regulation, setting the stage for the collapse of the financial system just eight years later. In the meantime, the derivatives market exploded and Koch was in perfect position to take full advantage.
Hoarding the Light
The whole Y2K “panic” would become the subject of much ridicule after the absurd warnings of a computer glitch apocalypse failed to materialize. But, behind the scenes, the new millennium was teeming with multi-millionaires and billionaires across corporate America frothing at the mouth about what many of them knew was coming.
Coupled with the recently deregulated energy markets and new financial instruments around oil and gas, the Kochs and the Enrons of the world could see what regular people couldn’t possibly imagine. These “titans of industry” had the inside track on the country’s consumption patterns. They knew people were buying more computers, gadgets and devices as the roll out of the Internet reached critical mass and that, as a result energy consumption was about to skyrocket.
One trader at Koch Supply & Trading spotted the trend early on in 2000. Brendan O’Neil started buying natural gas options as soon as an unusual cold snap made gas prices spike in the Spring of that year. O’Neil, like his peers, knew that major gas shortages were on the horizon. By December, the price of natural gas stood at $10.48, up from $2.88 in March. He alone would make Koch $70 million on the gas trades. His team, only one of many at the Houston offices, delivered $400 million to Koch’s coffers. Koch Gateway, the pipeline division, which actually delivered the gas to the buyers made only $15.3 million that year.
The artificial run up in gas prices caused rolling blackouts, store and factory closures, even car accidents from failing traffic lights around the country. But, it was clear to Koch where the biggest source of profits lay. So it was only logical that they would pour more money and effort into creating other speculative markets for the assets they already owned.
The obvious target was electricity. Paul Weyrich’s ALEC would take on the work of selling legislators around the country on the idea of an electricity market throughout the 1990’s and it would eventually take hold in several states, but none more disastrously than in California where a liberal Democrat state senator passed the bill that created the California Power Exchange (CPE).
The “megawatt-hour” was born. Equivalent to one hour of electricity needed to power 330 homes, it was the basic unit to be bought and sold on the exchanges and the national market value was calculated to be about $215 billon dollars. The CPE was set up in a way to allow the price of electricity to float with market conditions, but capped the amount Utilities could charge the end-consumer. To protect consumers from being left without power in the event no electricity was being bought on the exchange, an emergency authority called the California Independent System Operator (ISO) was created, whose sole purpose was to buy any shortfall in electricity the market left.
It was this peculiar agency that would be the target of Koch, Enron and other energy companies to inflate their profits at the expense of the Utilities through a fraudulent scheme known as “parking”. The fraud consisted of keeping megawatt-hours off of the CPE by making fictional sales to an out-of-state Utility and then turning around and selling the same megawatt-hours to ISO at a much higher price. The more power prices rose, the greater the temptation to manipulate the market in this way.
California’s Utility companies were driven to the verge of bankruptcy with losses of $10 billion and when the scandal finally broke in early 2001, governor Gary Davis worked out a bailout plan to save them. It took many more months before the underlying market “dysfunction” was addressed. Koch and friends continued to gouge their clients until the Federal Energy Regulatory Commission (FERC) finally stepped in. Koch quietly settled the charges brought against them for a cool $4.1 million.
The 21st century would find Koch Industries ready to indulge its voracious appetite. Just as it helped to create the economic conditions that would ultimately destroy the Farmland co-op and facilitate the purchase of its fertilizer plants, the success of its stealth political operation in tandem with other American oligarchs would free them up to act in their own interests while convincing others it was in theirs, as well.
FDR’s New Deal was truly a vestige. Workers’ rights were widely perceived as an evil of defunct communist systems of government and, thanks to the Supreme Court’s Citizens United ruling, the 0.01% could finally use their wealth openly to finance their preferred presidential candidates without the embarrassing need to actually run themselves, as Charles’ little brother David had done in 1980.
The internet and the rise of computerized, data-driven management systems would also give Koch the tools needed to finally dispense with the pretense of MBM or other such frills when it came to keeping employees in line. The engineer in charge of the most powerful private company in America could finally trade in all those messy, self-moving parts for real-time numbers.
If you were to call Charles de Ganahl Koch a Nazi to his face, you’d probably get escorted out of wherever you are by a member of his large security detail. But, you wouldn’t be very far from the truth. While his views on socialism or anything approaching the communist ideology are more than clear, the tacit approval of fascist ideology that runs in the family is less well-known.
In 1932, as told in a Koch-commissioned family history, Fred Koch collected $500,000 for building 15 oil refineries for Joseph Stalin, forming the backbone of the Soviet Union’s petroleum industry. The contract had been won through a referral, of sorts, after the senior Koch had helped build one in Great Britain with his future son’s namesake and mentor, Charles de Ganahl. Fred continued to provide technical assistance as the Soviets went on to build 100 more. The family-approved lore leaves this last detail out, contending Fred Koch’s distaste for the communist regime led him to renounce all future involvement.
An eight-year gap is left in the official Koch story, but various independent accounts have him traveling to Hitler’s Germany from 1933 onwards. According to archival records unearthed by Jane Mayer in her seminal book, Dark Money, Winkler-Koch Engineering of Wichita – Fred’s company – “provided the engineering plans and began overseeing the construction of a massive oil refinery” in Hamburg. The company that hired Koch’s firm was led by American Nazi sympathizer, William Rhodes Davis, who met with Hitler himself to secure the deal. Completed in 1935, the refinery had the capability to produce the high-octane fuel German Nazi war planes required.
Fred had a real soft spot for the Third Reich and the other fascist regimes. Just before hostilities broke out in ‘39, Fred Koch decried America’s “dependence on government” and expressed his wish that the “course of idleness, feeding at the public trough” he saw as an affliction the United States could “overcome”. Perhaps it was this desire to correct the nation’s “course” that inspired him to bring a fervently pro-Hitler, German governess to rear his two first-born sons, Freddie and Charles. The boys were subjected to the nurse’s rather harsh methods, which included force-feeding and enemas for much of their early years until she returned to Germany of her own accord in 1940.
Physical, emotional and psychological abuse in the Koch household was the price Fred Koch exacted from his offspring for being born. The patriarch was known to let his rage loose on them with tree branches and belts. A family member witnessed the “twins” get “whipped like dogs” after disturbing some rocks in a stone patio. For Freddie Koch, the eldest son, life offered more than this and he would never participate in the family business, choosing instead a career in the arts and a close relationship with his mother. Charles, on the other hand, would rationalize it as the actions of a man trying to instill a “work ethic” in him.
Younger brothers, Bill and David, would round out the Koch heir pool. But, Charles would prevail in the end wresting control from Bill who would challenge him in court before accepting a multi-billion-dollar buyout. David would assume a subordinate role, preferring to indulge in his Manhattan lifestyle, but still own half of Koch Industries. Eventually, he would join his older brother in pursuance of their shared goal to bring government to heel wherever their interests were threatened.
Scorched Earth Freedom
At the center of the fossil fuel barons’ nightmares was what Lew Ward, chairman of the Independent Petroleum Association of America, called “The radical environmentalist ‘off-oil’ agenda”. In 1997, when the Koch-connected and former Oklahoma oil man said this to a room-full of colleagues, the scientific consensus had already arrived at the conclusion, that 80% of the word’s fossil fuel reserves had to remain in the ground if we were to make it to 2050 with tolerable temperatures. Such warnings represented a death knell to an industry dominated by mostly private, but fabulously wealthy hands with a long tradition of bucking government regulation.
Historically and for obvious reasons, this powerful faction had maintained their position in the pecking order despite blatant anti-government stances and even public expressions of the racism, like that of Texas oil magnate Hugh Roy Cullen who, in defiance of FDR’s policies decided create a new political party promulgating “the restoration of the supremacy of the White race”. His grandson, Corbin Robertson Jr., a prominent member of the Koch network, owns one of the largest coal caches in the country, second only to that held by the government of the United States.
A full list of Koch’s donor network is yet to be compiled, but Jane Mayer’s tour de force accounting of this massive subversive political operation, provides a comprehensive sample that gives us a clear image of the scope and reach it has. The players are not limited to the fossil fuel industry either. Sheldon Adelson of the Las Vegas Sands casino empire and Stephen Schwarzman of the embattled Wall Street hedge fund, Blackstone Group are only two of the enormously influential characters with whom Charles Koch has partnered with to face off increasing pressure from a planet, which can no longer support the activities they profit from.
Koch was already years ahead of Lew Ward’s admonitions in the late 90’s, having poured millions of dollars to political front groups, foundations and think tanks dedicated to the Oligarch’s cause. But, the new century would, indeed mark a stronger push by the richest men in the country to put a stop to the “siege” their extractive industries were under.
We’re Not in Kansas Anymore
Koch’s political machinery was hard at work mounting attacks on what he and Henry Manne had identified as their number one enemy all those years ago and which Ward had warned against in his retirement speech at the IPAA. The environmental movement, in the mind of the fossil fuel oligarchy, was nothing more than an attempt by an entrenched government bureaucracy to restrict their property rights and rescind the divine edict passed down by the gods of “free markets” to devastate any ecosystem in the name of profit.
Foremost in their sights was the EPA; the single government agency they despised above all others. Taking it down required a long term strategy, which Charles Koch embraced. In concert with the vast array of think tanks and political lobbying organizations masquerading as foundations, as well as straight forward lobbying efforts, the Koch network went about the work to overturn, subvert or neutralize any environmentally-friendly legislation.
In Washington D.C., Koch Industry lobbyists were not only among the most active, but also among the most numerous. In a time when 90% of U.S. corporations did not employ one full time lobbyist, Koch Industries had five full time lobbyists who were industry leaders in their own right, fighting the company’s top issues: chemical safety, rate billing and tax rates. The bigger operation, however, was happening at the state level where Koch through ALEC and other groups like Americans for Prosperity (AFP) were pushing through legislation and even candidates favorable to their anti-environmental aims.
One of the most salient examples was the fight to reverse Kansas’ renewable energy mandates passed by the state legislature in 2009. Koch and friends zeroed in on state lawmakers two years later, sending Cato Institute scholars and other “heavy hitters” to testify about the “damaging” effects of wind power on the economy and other critiques of the mandate, which had been adopted as a compromise to the construction of a coal fired plant.
Republican Kansas state senator, Dennis Hedke, a geophysicist who had done consulting work for the oil and natural gas industry was the chairman of the House Energy and Environment Committee pushed a bill in 2013 to repeal the renewable energy mandate. The bill had been crafted by ALEC, which Hedke put forward with a few modifications. Parallel to this, Koch dumped $50,000 in the local primary races – a huge amount for the mostly rural state. The money was used to run negative ad campaigns against opponents, while the Koch-picked candidates were advised to simply stay home.
Hedke’s repeal passed in 2015 and, by then, Koch had managed to fill the Kansas state house with Koch Industry drones. Republican Senator Tom Moxley had joined the legislature in 2007 and sat in the same Energy and Environment Committee Hedke chaired. Himself a climate change skeptic, Moxley had changed his views after reading the science and, after witnessing the underhanded tactics used by the Koch network to defeat the bill and flip the house, he retired in disgust.
These same moves were executed in over a dozen states by the same Koch funded institutions and political operatives. Ohio and West Virginia passed similar bills against renewable energy. In these particular cases, the bills were not even modified from the drafts written by Koch-funded Heartland Institute and presented by ALEC. Through these machinations, Koch managed to redraw the country’s political map, setting the stage for the coup de grace in 2016.
There’s no such thing as an outsider in American politics. No matter how seemingly removed from the established order an individual in either of the two sanctioned parties might be, a network of sponsors must exist behind the scenes to put wind in the sails of any prospective candidate for public office. Donald Trump, despite claims of being beyond the reach of special interests because of his wealth, is no exception. Certainly, no one can reach the highest office in the land, beset as it is by a multiplicity of foreign and domestic policy issues, without a powerful coterie of intensely interested patrons.
Charles Koch had been working, greasing and diverting the political pipelines for decades by the time Donald Trump ran roughshod over the Republican Party and captured the electoral victory over Hillary Clinton in 2016. A narrative was quickly spread about Koch’s distaste for the New York real estate developer and media personality. Rumors of the billionaire brothers balking at Trump’s veiled, derisive references to their donor network fundraisers helped the NBC reality star appear to be a kind of anti-establishment, anti-oligarch maverick. Trump’s running mate would have been a red flag for anyone entertaining such ideas, if the Manhattan billionaire’s own status wasn’t a clear enough indication of the opposite.
Mike Pence was closely aligned with Koch’s Americans for Prosperity as Congressman and later Governor of the state of Indiana. Just six months into the new Trump administration, Charles Koch took an unscheduled, hour-long private meeting with Pence in Colorado where the fossil fuel baron, the Vice President and a few staffers discussed the President’s legislative agenda and, significantly, strategies to take after the midterm elections, which they already foresaw being a ‘blue wave’.
As Trump filled cabinet positions, Koch’s hand was more than visible to anyone with eyes to see. Rex Tillerson’s appointment as Secretary of State, while not directly tied to Koch Industries was, nevertheless, a blatant gift to the oil industry, in general. But, once Tillerson exited he was replaced with a Koch politician through and through in Mike Pompeo who was a member of the House Energy and Commerce Committee during the 112th Congress during Obama’s second term, when Republicans took control after the 2010 midterms.
Pompeo was then a freshman Republican from Wichita, Kansas, home of Koch Industries. Known as the “congressman from Koch”, Pompeo not only received funding for his political campaigns from Koch, but for his own aerospace company, as well. The future Director of the CIA even poached Koch’s lobbying team to find his Chief of Staff, Mark Chenoweth.
The Republican-controlled Committee featuring Pompeo had signed a “No Climate Tax” pledge invented by Americans for Prosperity. 156 Republican house members would go on to sign the same pledge and initiate the attack on their donors’ nemesis, the EPA, by taking away 27% of the Environmental Protection Agency’s budget.
The radical transformation Koch and his cadre of billionaires had carried out in the nation’s political landscape was beginning to reach critical mass. The red lines their policy think tanks and front groups had drawn across the country had delivered a whole new species of politician to the halls of state and municipal power and, in turn, to the floor of the U.S. Congress. The next step was 1600 Pennsylvania Avenue.
Destroying the EPA
The plan to get rid of the Environmental Protection Agency would take six years to complete, according to David Schnare, the man tasked with putting it together. Schnare was a part of Trump’s EPA transition team, which also included AFP organizer, Charles Muñoz, senior research fellow at Weyrich’s Heritage Foundation and outspoken EPA opponent and climate change denier, Myron Ebell.
Schnare’s 47-page “Agency Action Plan” was a veritable wish list of the fossil fuel industry: elimination of the Clear Act Greenhouse Gas regulations, rescinding of federal fuel efficiency standards known as the CAFE standards and the end of Clean Coal laws. As for the agency itself, it would be broken up and its functions assigned to other agencies or ignored altogether.
Trump’s initial pick to lead the EPA, Scott Pruitt, was yet another creature of the oil interests. Attorney General of Oklahoma where oil reigned supreme, Pruitt ultimately proved to be to incompetent to see the job through and resigned a year later. His replacement, and EPA Administrator to this day, is former Coal industry lobbyist, Andrew Wheeler.
Koch Industries had been pegged as the largest toxic waste producer in the United States, responsible for 950 million pounds of hazardous material in 2012 alone. The company emitted the equivalent of 5 million cars a year in greenhouse gas pollution. Koch boasted of its “10,000%” compliance policy throughout its huge, cross-industry private corporation, but evidence of it is scant and often contradicted by the public record.
In 1998, the MPCA (Minnesota Pollution Control Agency) fined Koch $6.9 million for pollution from the Pine Bend refinery. An additional $11.5 million followed after federal criminal charges were brought against the company. One of Koch’s own employees, whose job it was to make sure the refinery was abiding by the clean water laws, had to blow the whistle on Koch after they tried to silence her when she tried to report the violations.
New Money, Old Game
The FBI’s case in the Osage murder investigation in the 1920’s revealed a plot so evil, that it transfixed the whole nation when the details were published in the biggest newspapers and projected on the earliest movie screens as news reels. William K. Hale had built a solid reputation in the Osage community as a stand-up citizen purporting to protect the interests and livelihoods of the Native Americans in this corner of Midwest America, who were sitting on a fortune beneath their feet. The people looked up to this White man as a beacon of righteousness and integrity.
When it was discovered that he had masterminded the cold-blooded assassination of several Osage Indians in a plot to secure their headrights, worth millions of dollars, his name and face would become synonymous with the devil himself for the descendants of the Osage tribe. The satanic scheme was not limited to Hale, however, and while the FBI would never pursue any of the other leads in the epidemic of Osage murders, subsequent investigations have shown that dozens of other ‘masterminds’ and accomplices were killing hundreds of Osage Indians during this period in order to take over their oil fortunes.
The murderous “Indian business”, as it was called by the perpetrators themselves, reached high up the social ladder. Far beyond the relatively limited capabilities of a former ranch hand like W.K. Hale. But, Hale was enough for J. Edgar Hoover to establish himself as the nation’s top law enforcer. After all, the case was sensational enough to grab the public’s attention and peddle a reassuring tale of good triumphing over evil. But, the truth was that nobody really cared much about Native American lives and the 12 years Hale served of the “life sentence” he received for the single murder he was convicted of was more than most would have expected in those days.
A similar game, on a far larger scale, is being played out today with the calls for “liberty” and “free-markets” by the billionaire Koch network, posing as defenders of the everyman and patriots who seek only the best for America, have angled to trick an increasingly exploited and economically insecure population into supporting policies that, in the long run, cause us all irreparable harm.
The truth of their self-serving greed will make itself evident in its own time, much as it did when a repentant Koch oil gauger, unbeknownst to him, struck up a conversation with a relative of the very first victim in the Osage murder saga. Charles Whitehorn was shot between the eyes for his oil wealth and his corpse left rotting on a hill over a mile north of Pawhuska, Oklahoma. Osage Chief, Dudley Whitehorn, sat with the former Koch employee as his car was being repaired at a local gas station. “We did steal from you”, the remorseful man admitted.
Works cited in this article: Kochland, The Secret History of Koch Industries and Corporate Power in America by Christopher Leonard; Democracy in Chains, The Deep History of the Radical Right’s Stealth Plan for America by Nancy MacLean; Dark Money, The Hidden History of the Billionaires Behind the Rise of the Radical Right by Jane Mayer; Killers of the Flower Moon, The Osage Murders and the Birth of the FBI by David Grann