Transcript by Rey Smith
Jini Palmer: Welcome to Town Hall Seattle civic series. On this episode, author and business reporter Christopher Leonard came to our Great Hall stage to talk about how one private company, Koch Industries, consolidated power over half a century and how, in doing so, transformed capitalism. Christopher asserted that the corporation’s strategies for success have led to a widespread fallout in our country and presented his new book, Kochland: The Secret History of Koch Industries and Corporate Power in America.
Paul Constant: Hi, thank you for the book. I really enjoyed the book. It’s a really interesting way of looking at a lot of the problems that are coming to a head in America right now. I don’t usually like to open these author conversations with an idea as basic as, where do you get your ideas from? But I am very interested in how you decide you want to devote a whole book and the better part of a decade of your life to this subject.
Christopher Leonard: Yeah. The most important thing is not knowing what you’re getting into at the beginning. Okay. Idea. When you start a book. Really though, it was late 2011—and I’ve been a business reporter for 20 years now—and at that time I had a lot of pretty profound concerns that were really bothering me and stuff I wanted to write about, stuff I want to explore and I could give you the whole laundry list of things, but maybe the better way to say it is I really realized—I had this aha moment—that Koch industries was this perfect story, this perfect vehicle, this perfect canvas to paint on, through which I could explore all of these things I cared about. This one story. And so I realized early on that, yeah, I can really put my head in this place for what I thought was going to be like three years because the company is so diversified and so widespread. And so I’ll just tell you what the vision was at the very beginning: first of all, this corporation is enormous, right? It’s gigantic. It’s annual sales are bigger than that of Facebook, Goldman Sachs and US Steel combined, but what really draws me to it is that this company specializes in the kinds of businesses we need to survive, but that we don’t directly interact with everyday. There’s no Koch brands on this stuff, but I mean—not to sound hyperbolic—it is around us all right now. Koch makes the fuel we use to drive everywhere we go. They work on the pipeline system and natural gas systems that deliver a lot of this electricity. They make the carpeting material. They make the synthetic fibers in the clothing. They make sensors in our phones. They make nitrogen fertilizer, which we don’t think we really buy, but it’s literally the bedrock of our food system. So this company is hugely embedded in our entire economic systems.
What that means when you write about it is you’re writing about blue collar manufacturing workers on the factory floor. You’re writing about high flying financiers who are trading derivatives and commodities and doing the whole wall street thing that’s become so important in America. You’re writing about corporate lobbyists who are shaping our public policy, all within the framework of this one company. So I realized back then that this institution really has a lot of traction to it and I didn’t even—I’ll shut up. I’m really talking a lot.
PC: No, this is great.
CL: Okay, then I’m going to keep going. I want to tell you one more thing that I didn’t even realize at the beginning was the other thing that made this company such a great subject was the person at the very top, Charles Koch. You know who’s been literally the unquestionable authority over this organization for 50 years. Charles Koch became CEO when Lyndon Johnson was president. I don’t know any other CEO in America who’s had the job that long. And this guy, Charles Koch, has this incredibly rigid, very extreme worldview. I think extreme is an okay word to use. He’d probably use it himself. And he represents one extreme pole in this huge and bitter debate we’re having in our country right now about what role government ought to play. He’s way over here: that we need to have this free market utopia libertarian thing. And he spent really his whole life trying to reshape America to be in that image. So not only do you have this huge thing you can write about, but it really crystallizes this debate we’re having in the country.
PC: You said you were projecting maybe three years for it. Charles Koch’s a pretty private person even though he’s famous now, I think largely in part due to Jane Mayer’s profile of him in the New Yorker. And that was sort of when it broke open and when most of us in this room learned about him; that must’ve been a challenge. Did that contribute to the time that the book took? Because you paint a pretty full portrait of somebody who is not a very open person.
CL: That definitely contributed to, it was like crawling over glass, I’m not even gonna lie. The company is privately held so they don’t have to disclose financial records or much of anything. And then they have a deep baked-in culture of secrecy, it’s just part of life inside—gosh, I don’t even know where to start—it’s an extremely insular organization; that’s where the word Kochland first came from. The first time I went in 2013, I could drive right up to headquarters. After that, they renovated the campus and part of the renovation was they added a 10 foot tall wall around the north side. So the next time I went in, it was literally like entering a fortress. And that was so telling about how insular and self-contained this place is and people don’t want to talk about it. And people don’t want to talk about Charles Koch without his permission.
So yes, it took years of flying to Wichita, knocking on people’s doors. One person I got to, it took 2 years to convince that individual to go on the record as a person in the book. So, it took a lot longer than I thought. But as a reporter, that, to me, is really a story worth telling. Because it’s not the stuff that is publicly flaunted and publicly put out there. I’m not saying that everything the public relations industry puts out there is not true, but we are so inundated with the story that people want to tell us—messaging, messaging, messaging all the time—and it was really gratifying and it really drove me to tell a story that is being intentionally held secret. And if I could add one quick thing, to talk about the secrecy: it’s not just all nefarious James Bond villainry type secrecy. The book opens in 1981 when these bankers from Morgan Stanley fly to Wichita and they try to convince Charles Koch to take his company public and he would’ve gotten a $23 million bonus that night if he did it—which is like $60 million today—and he sent them packing. He turned them down flat. And the memo they wrote was just like, “He doesn’t want the money.” They couldn’t believe it. And there were a lot of reasons, but one of the things that caught my eye is he told these bankers, ‘If we go public, people are going to learn how much money our commodities traders are making. And if they know how much money our traders are making, they’re going to stop doing business with them.’ And that was so illuminating to me about why this company is so private and secretive, because—we’ll talk about it—but their strategic DNA and the way they make money and the way they succeed is by knowing more about the world than anybody else knows and exploiting their knowledge advantage and acting faster than other people can act, knowing more than other people know. And when that’s a kind of strategy you have, you don’t want people to know what you know and you don’t want people to know that you’re about to do. So yeah, the secrecy is deeply embedded in the whole culture.
PC: And that part is very interesting to me. Like obviously the secrecy is part of his success as a businessman. But it seems like it’s such a free marketeer—as a libertarian—he seems like the kind of person who would be a big believer in shareholder value as a driving force. So it seems almost sort of hypocritical to me. Am I reading his libertarianism wrong? Is it pre-shareholder value as the driving force or is it something else?
CL: I mean he really is a big believer in shareholder value and the thing is there’s like two shareholders.
It’s all true. David and Charles Koch owned 80% of this enterprise and Charles Koch drilled into his people: ‘what you need to be thinking about is return on investment, return to shareholders’—meaning David and Charles, like it sounds funny, but it really is true—’and you need to be thinking about, everything you do needs to increase the return to that.’ So I mean, he does believe in that. And I’ll tell you what, you’re pointing at a really interesting element of libertarianism, I think, which is that you have this view—the word libertarian; you think transparency, competition, markets, democracy, freedom, voting. It’s more complex than that. It’s more complex than that. Charles Koch was born in a hyper-political family. His dad, Fred Koch, was one of the co-founders of the John Birch Society. And that’s a secret right-wing organization that believed the federal government was infiltrated by communists, and that it was a trojan horse of tyranny. So that’s the political conversation around the Koch dinner table, right? And so you’ve got 4 sons that all seem to have absorbed that. But then Charles, as he grows older, he goes to college, he gets multiple engineering degrees from MIT. I mean, we’re talking a smart guy, and he starts reading these Austrian economists like Ludwig Von Mises and Hayek. And he starts thinking, “I have discovered the blueprint of how human societies ought to work and not just how they ought to work, how they do actually work.” Von Mises wrote this crazy book called Human Action. It’s very dense, very insane in many ways, but he feels like he has come up with how humans actually prioritize what they care about and how their actions are guided.
And you get this voluntary market exchange system and then when the government intervenes, it only creates massive distortions. So Charles Koch believes in this very pure market system that can’t be tampered with by the government. Now that means it is wrong for voters to pass a program like social security that takes money from productive citizens like Charles Koch and gives it to unproductive citizens like Chris Leonard—I’ll just use myself as an example—because what you’re doing is you’re taking capital from the sources that generate it and you’re giving it to non-generating sources. So the whole picture of libertarianism isn’t quite as neat and pretty as “everybody has the right to vote” and “everything needs to be transparent.” I think the central thrust is “markets need to be allowed to operate, corporations need to be allowed to operate in an unfettered way.”
PC: So this is the pure libertarian. This is not like somebody reading Atlas Shrugged and just like going on a tear. This is somebody who’s down at the building blocks of libertarianism and thought it through and is a true believer.
PC: Switching gears a little bit, we kind of have to talk about this because David Koch wasn’t the brains behind the operation, but he passed away a few weeks ago. And that was obviously momentous I think. Can you talk a little bit about what you think: does that mean anything for Kochland, for Koch Industries moving forward?
CL: Okay. So we’re here on a Friday night—I’m just going to be brutally honest with everybody—David Koch was not strategically important to Koch Industries or to the political network. As I mentioned, I flew to Wichita and was reporting on this for years and I got former people who built the Koch system to talk to me in their living rooms and their basements. And we talked for hours. David Koch’s name doesn’t come up when you talk to these people. I talked to some of the first chapter presidents in the political network and Americans for Prosperity and the former senior lobbyists and the think tankers and the political operatives they employ. David Koch’s name doesn’t really come up. It really is all about Charles Koch. There were 4 sons, 2 of them leave the business in this huge contentious thing—we don’t need to talk about it if you don’t want—and then you had David and Charles. They come to a truce. They split the shares 50-50. It was probably the most consequential decision David Koch ever made in his life, to form a truce, hitch his wagon to Charles. And then David Koch went and lived the more public life. He went to New York City. He has his name on museum wings, he gives the speeches at Americans for Prosperity—their political group—he gives speeches at these events. Charles Koch is the one who stayed back home in Wichita and just diligently, quietly, patiently built this massive corporate empire. So I will be honest, I didn’t interview David Koch. I was very obsessed with interviewing Charles Koch and the people around Charles Koch, so I guess all I would say is that David Koch’s passing is super sad for his loved ones and for his family. It’s a very sad thing, and yet it won’t have a strategic or operational impact on the corporation or the political network, is what I believe.
PC: Okay. Would you say that his libertarianism is the same strain as Charles’s, or did he think it through as much?
CL: So 1980, David Koch ran as the vice presidential candidate on the libertarian ticket, went around, gave speeches, gave a lot of money to the libertarian party, got a lot of press attention. And I feel like I’m beating a dead horse, but it was Charles Koch who was writing the letters to the head of the libertarian party at the time, who was organizing all these big campaign donations going into the libertarian party, who was running things quietly behind the scenes, I think, in a more significant way. So my impression of having reported on this is that David Koch went along with Charles Koch. I think they believed the same things. I do think his libertarianism was of the same strain as Charles Koch, but Charles Koch was—is, rather—an enormous figure. And I feel like David Koch lived in his shadow and agreed with him, was a partner, but Charles Koch was the one who would set the strategy.
PC: Okay. And this might sound like pop psychology, but I’m trying to get into the head of where Charles Koch is coming from here. When David Koch died, there was a fair amount of celebration on Twitter on the left and things like that. And it caused me to wonder if Charles Koch realizes that people will do that. And I guess I’m wondering if Charles Koch thinks of what other people think of him. You know what I mean? Like is he aware of the fact that a lot of people in this room don’t like him and does that matter?
CL: He is aware that a lot of people in this room don’t like him.
PC: I’m making an assumption.
CL: Let’s make an assumption. Well any room I talk in, it’s fair to say. I mean, it’s fair to say and honestly—I’m not kidding—I think he feels sorry for people who dislike him. He is not a man plagued by self doubt. He really thinks he has figured it out. And I interviewed these people who worked with them for decades and I’m thinking of this guy—Brad Hall, who was a senior executive—he would just shake his head at me cause I had these poisonous socialist ideas. Like the new deal was a good thing and he would just go, “God, Chris, they really poisoned your brain in elementary school,” so I think within the system, inside Koch Industries, Charles Koch is seen as a hero. He stood up and put his head above the trench. He stuck his neck out. He tried to advocate for views and principles that the people in that organization really believe in. And he took flack and he took heat and he took attacks. And I will say, I talk a lot about that wall they built around campus as this kind of crazy metaphor for how insular they’re becoming, but they face intense death threats, vitriol, anger. It’s a very real thing, but I don’t think that it makes him doubt his beliefs for one second.
PC: Okay. There were three sentences in this book that just dropped my jaw when I read them. There were several jaw drops when I was reading this book, but this one was one where I feel like I could read a whole book about this. So I’m just going to read the three sentences for you. “When they were children, Bill Koch hit his twin brother David in the head with a polo mallet leaving a permanent scar just behind David’s eye. Later, Bill stabbed David Koch in the back with an African sword from their father’s collection at the family compound, leaving another scar. David forgave his twin brother for both attacks.” What the hell? Is there, is there more to the story or is this just something that you heard?
CL: So there were 4 Koch brothers and we mentioned the dad, Fred. Charles Koch describes his father in these euphemistic terms of larger than life, overbearing. The guy drove his sons intensely. He made them literally box with each other, fight with each other. He had this mania to impose a work ethic on his son, Charles Koch, made him dig dandelions out of the backyard with a spoon, sent him off to work at a ranch when he was a teenager, and not in a romantic way, just hard ranch work. And you saw very fierce competition between these brothers and you had Freddie Koch who was the oldest and he was just out from the beginning. “I don’t want anything to do with this. You people are crazy. I’m outta here.” He went to New York very early, never came back. Then you had Charles, who dad sucked in to take over the business basically. And then you had these twins, David and Bill. Bill was always—I mean, the guy is just like a walking externalized psychotherapy session all the time, talking about how horrible his father was, how much he hates his brothers. He’s been attacking his brothers since he was a kid. Those are anecdotes from David and Bill about the attacks, the physical attacks. And Bill Koch waged a war against David and Charles for 20 years because he tried to get Charles fired. Bill tried to take over the company; he could never accept Charles’ authority. He sued them. He employed armies of lawyers. He employed detectives to dig through Charles Koch’s trash. He employed people to pose as reporters. He tried to plant terrible stories about Charles in the press. I mean, there’s some deep psychological stuff here. And I think it comes back from a domineering father making the children compete. And I don’t want to get into pop psychology either. Most of this book is about the decline of labor unions and things like that. But there’s a scene at the end—the question is, why does Charles Koch work so hard? He’s 83, he still gets to the office before the sun comes up. How much money is enough? Why? What drives this guy? And in my mind, an important scene at the end of the book is that you’ve got this bronze bust of Fred Koch outside Charles Koch’s office. And every day when Charles Koch walks into the office, he walks past it. And now at the age of 83, Charles Koch has essentially surpassed his father in every field. His dad was into politics and printed these little pamphlets. Charles Koch built one of the most influential political networks in the country. His dad built a business. It was kind of this hodgepodge. Charles Koch unified it, blew it up, turned it into a corporate goliath. I think that that’s incredibly significant, that he has essentially surpassed his father. I think that’s what drove a lot of the psychodrama that you just described as well.
PC: Okay. Why didn’t the Koch Industries invest in alternative energy at some point rather than
fight so hard to keep the fossil fuel industry stranglehold going? At some point doesn’t it make better business sense to diversify and reach out?
CL: No. And I’ve asked myself that question a lot. They are sitting on all this cash. They have all this money. Why aren’t they just pivoting into wind and solar? Why not? So momentum matters a lot. Charles Koch took over the company in 1967 when he was 33 years old. And 2 of the most important assets that he inherited was an enormous crude oil gathering system. Koch, at the time—from the 60’s up through the 80’s—it was the largest gatherer of crude oil in the United States, meaning Koch were the people that would go out to the well, get the oil, take it to market, which means they were also one of the largest traders of oil supplies in a world. I mean, they were buying and selling oil supplies. They would l go from the Gulf to the United States, et cetera. Critically, they owned a huge stake in an oil refinery up in Minnesota, and Charles Koch, his first move as CEO was to purchase that entire refinery. And it sounds silly to talk about one oil refinery, but this is the Pine Bend Oil Refinery in suburban Minneapolis. And it’s amazing how much money you can make by owning one oil refinery. The economics of the oil refining business is astounding and crazy to me. And it tells such a big story about regulatory dysfunction in the United States, but let’s leave that to the side for a second. He bought that oil refinery. It generated billions in profits for them over the years. They buy another oil refinery. They own fossil fuel pipelines. They own natural gas pipelines. They own natural gas refineries. Okay, so let’s get up to the year 2009 when Barack Obama is president and a Democratic Congress is talking about regulating greenhouse gas emissions. What does that mean for a company like Koch that owns all of these massive assets? Well, here’s what it means: the company has billions of dollars sunk into the physical infrastructure of our fossil fuel system, the refineries, the pipelines, the shipping channels around the world where it’s buying and selling leases for super tankers of oil, all of that’s sunk investment, billions in this physical infrastructure.
Then you’ve got to count against that the flows of crude oil that will go through this infrastructure every year for the next decade and two decades and three decades. That’s a lot of money. Now let’s think about if we pass a law that caps greenhouse gas emissions. And demand for fossil fuels starts to go down and alternative sources of energy like solar and wind arise; all of a sudden the value of those assets you own is going to go down. The flow of oil through those is going to go down over future decades. The cost is truly in the trillions. You’d lose trillions by writing down the value of those assets and by losing that future revenue. So I mean, there’s money on the table here that’s difficult for normal people to conceive. And I think that that’s one of the reasons why they have fought so vigorously to keep the fossil fuel system alive. And they fight vigorously. They have fought to derail greenhouse gas emission rules for sure, but they have also fought on the state level, quite ingeniously I believe, to thwart renewable energy programs. And I have to say—I’m going to shut up here—but I have to say—
PC: You are here. They’re here to listen to you.
CL: Okay. I want to make a really quick point about—Koch industries is out here today spending a lot of money on political ads, think tanks. And when it comes to renewable energies they say, “This is crony capitalism. The corrupt Obama wants to steer money to these inefficient industries like solar and wind. It’s inefficient. It’s crony capitalism. Let the free market reign.” Meanwhile, they celebrate, in this world, the story of fracking—fractionated drilling that has given us all these natural gas and crude oil supplies. There’s a chapter in the book that blows my mind about how Koch got in front of the fracking revolution down in Texas. Just amazing. They built a pipeline superhighway to take all this new fracked crude oil from Texas to Koch’s refinery. Fracking was a ward of the state for decades. Fracking only happened because the federal government gave billions in tax subsidies every year to fracked gas. It did the basic research to figure out the technology to frack over decades. It funded university centers to figure out how to frack, how to make it cheaper. And then the private sector people came in on the very tail end of that and kind of commercialized it. So we didn’t hear these terrible complaints about crony capitalism and industrial policy for all those decades. But now that we’re trying to generate for the first time, actual competition, actual real competition in the energy sector—in other words, giving fossil fuels a competitor—they’re working to quash that effort all around the country. Yeah.
PC: They recently, I think, lost a public transit fight in Arizona right at the ballot recently.
CL: That’s right.
PC: They were against public transit, obviously. They were on the anti-public-transit side. It seems like Charles Koch’s particular genius involves sort of squeezing into the middle like you were talking about; how it’s impossible to boycott Koch industries because they are the middle of so many important industries. And they also skirt laws. There’s a description of how they broke up a union that—it’s all borderline legal or likely illegal in some parts—and it seems to be baked into the plan. Is it possible to build the kind of fortune that they’ve built within the realm of the law? Is illegality part of the system, is it a part of the plan?
CL: Well, illegality is definitely part of the history. I mean, would it have been possible to build this without illegality? I don’t know. They didn’t build it without illegality and the book shows that clearly. And Koch, as I said, was one of the largest gatherers of crude oil in the United States for decades. They systematically stole oil. They would go out to the well, they would gather—I’m using hypothetical numbers—they would gather 100 barrels of oil and leave a little ticket that said they had only gathered 98. They put their thumb on the scales to always collect more than they paid for, just to make sure they were never short. And this yield did roughly $10 million of profit a year for collecting oil they didn’t pay for. And I interviewed this guy, Phil Dubose, who was an oil collector all the way up to a vice president who described how his bosses taught him to systematically steal and why he systematically stole when he worked for Koch industries. And he just said, “You know, it was a gray area. Measuring oil is a lot more complex than people think it is, and in the gray area,” he told me, “Koch just pushes to that line.” And I did see this again and again. Is it stealing? Well, how good are your lawyers and how many do you have? That’s really what it would come down to, not infrequently. And I want to give Koch credit, they do take following the letter of the law very seriously in many regards today. They had a lot of criminal misconduct in the 1990’s. They cleaned up their act in the 2000’s, but you still see that DNA; that they operate in very murky territory and they’re very aggressive, and illegality can be in the eye of the beholder in that world. Really. It can.
PC: Yeah. Do you have a question?
Audience Member 1: So, Charles Koch is 83 years old. Literally the central perhaps charismatic figure of the entire operation. And what do you foresee happening after Charles Koch’s death with Koch Industries?
CL: Yeah, that’s a super important question. One of the last chapters of the book is called The Education of Chase Koch. And it’s about Charles Koch’s son, Chase, who’s about—I think he’s 44 years old now and he’s been cultivated since he was seven years old to take over this company. When Chase was born, these employees hung up a banner that said, “Welcome Crown Prince.” That’s the shadow he’s lived under his whole life. And I think he will be CEO one day. There might be an interim CEO, but there’s this huge question that you ask: will this organization be the same without the same charismatic individual at the center? It’s like the Steve Jobs question. Will Apple ever be the same? Charles Koch argues that he has built a management system and an institution that will replicate his leadership, in essence, that it will continue to operate as it has. But you’ve seen time and time again that when that charismatic individual leaves, the organization is often not the same. So the unsatisfying answer for you is, I have no idea what’s going to happen to this organization after he leaves. I do think it’s fair to say this thing has been built to the point where I would not bet that in 5 to 10 years, Koch industries will be smaller and less influential than it is today. Now, it might not have that explosive growth curve it had for the decades Charles was in charge. But it’s with us to stay. It’s a huge company embedded in our daily life.
Audience Member 2: In a way this might be a related question: I was curious about the stock shares that Charles had, what direction they went. Did they go down? Did they go over to Charles? Did the will say I’m taking it with me?
PC: That David had?
CL: That David—yeah. So David and Charles together owned 80%. And the public line right now is that David Koch’s 40% stayed with his family. He was married to Julia Koch and they have three young children. So my understanding is that the money and the shares are going to be with David Koch’s three kids. I promise I did report hard on this book, but now you’re asking me questions I don’t have the answers to. I don’t know what the ownership and leadership implications of that are. I’ll guarantee you Charles Koch has thought it through and he retains decision-making authority over Koch industries, but how the decision making authority is going to be transferred when Charles Koch’s renders his shares is unclear to me and I don’t know how they divvied up decision making authority that would have come with David shares. It’s inconceivable to me, frankly, that David Koch’s children will have a major decision-making authority role in this company in the future. It’s going to be Charles and Chase. But I just have to be super clear that I don’t know. The money stayed with David’s family. The decision making rights is a whole nother question that I need to do more reporting on.
Audience Member 2: They are secretive, that’s for sure.
Audience Member 3: So the political action networks that they started up in the states and the state legislature changes and all of these things have been terrific for how things have turned out over the years. But it seemed like, based on the Tim Ferriss interview, that he had changed a little bit of his direction. Like, “Those Republicans aren’t about what I want to be about, which is incentives, et cetera, et cetera.” Is that propaganda? Is things changing? Is he finding religion in his old age to do more good? And then a minor question, which is: during the reporting, did you ever find any hint that he wanted to do nuclear cause he knew it was a good thing long term?
CL: That he wanted to get engaged in nuclear energy? You know what, I never ever heard about that. And he has a master’s degree in nuclear engineering from MIT, so you would have thought it would be right in—
Audience Member 3: They can start a side business. They don’t have—
CL: Yeah, exactly. They’ve got the money to do it. I’ve never heard anybody talk about nuclear and Koch and it’s such an interesting question. I wonder why not. Now, I didn’t listen to the Tim Ferriss interview out of protest so I will—
Audience Member 3: He’s very sweet. He seems like a nice guy.
CL: Charles Koch, I’ve interviewed him. He’s a super sweet guy. Very charismatic, very humble, very warm. The rhetoric that is shared publicly is so inoffensive and inarguable, how could you ever argue with it? “I want to bring prosperity, innovation, entrepreneurship and opportunity to everybody.” But when you look at the actual speeches he gives internally and what he says internally and the memos he writes internally, it’s different. It’s totally different. Today’s Republican party is drifting away from Charles Koch’s libertarian free market vision, no doubt about it. Trump tapped in to these voters in a way Charles Koch never did. The tea party didn’t care nearly as much about fiscal austerity and deregulation as much as Charles Koch thought. Political science shows they cared a lot more about immigration and issues like that, and Trump came in and talked directly to that. So now Trump is pushing this America-first nationalist Republican party view that is really gaining a lot of traction. And Charles Koch is not on board with that, not on board with that at all. So there is a definite power struggle going on and it’s going on at the level of congressional staffers and lobbyists. It’s sort of below the surface and they’re trying to remain congenial publicly.
I firmly believe Charles Koch is in no way progressive, bi-partisan or softening in his views at all. The view I described earlier of Hayek and free markets and only prices—the price needs to be king in that world. Markets need to determine a price for healthcare and roads and schools. Government can’t do it. And he is unbending in that view and he has not softened in his older years. What he’s done is found a very smart public relations team that says, “Hey, you can give money to criminal justice reform, anti-military interventionist policy—”
Audience Member 3: Partner with Bloomberg.
CL: “Partner with Bloomberg. It dovetails with your libertarian principles—it doesn’t violate your principles—and it makes you look politically heterodox.” And I can’t tell you how many people come up to me like, “Isn’t Charles Koch a Democrat now or isn’t he kind of in the middle?” I hear it all the time. And so it’s been a very smart and very canny strategy, but he hasn’t changed his views, I don’t think.
Audience Member 4: With how hegemonic and ubiquitous Koch is in our economy as well as its political apparatus, where are its weak points? Its weaknesses?
CL: Great question. So economically and politically, I’ll talk about that. As much as I just talked about the fossil fuels picture, that is a weak point. The world is moving away. The world is moving away from fossil fuels and when you talk to the people in that world, like the industry consultants, it’s amazing how much things have changed. We used to talk about peak supply of oil and this catastrophic thing. We’re now talking about peak demand for oil. Demand for oil is flat to falling in a lot of parts of the world, so that terrible scenario I just described for Koch—where the assets that it owns refining sink in value and the future flows sink—that’s starting to happen. And so I think that that is a weakness of the business. They’re very deeply invested in this industry and the time horizon is starting to come down on it. Politically, there’s not a broad constituency for Charles Koch’s ideas and there never has been in America. When David Koch ran for libertarian vice presidential candidate, he got 3% of the vote; that’s about where this thing polls. And Charles Koch and his political network enjoyed a moment of profound influence during the tea party. But as I alluded to, they totally misread the tea party voter. They were not on the same page. And now you’re seeing America drift away from the libertarian Von Mises view of the world. You’ve got Bernie Sanders or Trump kind of thing, is how the Koch people see it. So politically I see weakness and the lack of broad constituency for their ideas.
Audience Member 4: How about Charles as an individual?
CL: What are his weak points?
Audience Member 4: Where would you consider his character flaws are?
CL: Well, let me talk about his character strengths in an honest way. Brilliant guy. He does think he’s helping the world. I think he genuinely cares about people. I really do. I think he thinks his view is the best way to organize society. I think he’s probably a nice dad and a good grandfather. As I’ve reported this book and thought about it, I would say his character flaw is a myopia, a blind spot: overconfidence in his view that he knows how the world works. That can be a damaging thing. And I will tell a very quick anecdote. When I went into Koch Industries and met him, they sent me a barcode. I held it up to a scanner, the steel gates open. I drive in. Security escorts me up to Charles Koch’s office and I walk in and he says, “Hey Chris, you didn’t have to wear a tie to talk to me.” You know, it’s kind of “Aw, shucks” thing. And then he turns around to his PR guy and he goes, “Ken, get us coffee. So anyway, how are you doing?” And it was this one moment when I realized this guy lives every day in the center of an empire he’s created where virtually everybody he encounters is beholden to him for their paycheck. He is influencing the world in a huge way. And again, he lives at the center of this thing every single day. How could he not have blind spots? And the size and prosperity of his company is nothing but a constant reaffirming verdict that he’s right. He’s right. How could he be wrong? He’s one of the richest people in America.
Audience Member 4: A true believer. Thank you.
CL: Yeah, thanks.
Audience Member 5: I guess we’ll continue with the theme of dissecting his mind. But you’ve talked a lot about how he’s a very extreme hardline libertarian, like very pure economic perspective. So I was wondering if you could talk a little bit about who he respects in today’s political and business landscape.
CL: I’m so glad you asked me that. Okay. So I was interviewing this senior political operative at Koch who has worked with Charles for a long time and he pointed out that Charles Koch doesn’t have pictures in his office of shaking the president’s hand or with his arm around congresspeople. He disdains politicians and he feels sorry for politicians. He feels like they are slaves of an absolutely broken system and they are totally beholden to these short term incentives; every two years up for reelection, constantly raising money, trying to get out there and market yourself. He—it’s weird—he sees it as a completely broken system that he looks down upon. He contributes massively to the dysfunction, absolutely, no doubt about it, and benefits tremendously from the dysfunction. David and Charles Koch, their net worth doubled during the Obama years. And when you read the company newsletter as I do, you would have thought the Obama years were when socialists were on the march across the country, confiscating property. Their wealth doubled. And the thing is, in this political dysfunction, the entrenched incumbent players are the ones who win. The people who benefit from the status quo are the ones who win. And that’s Koch industries. And so anyway, I will go ahead and say it: I don’t think Charles Koch really respects politicians and he sees them as competitors in a competition for his money and ideas. And they’re like players in a game.
Audience Member 5: So how about—sorry, follow up question—how about in terms of enterprise, like business people? I’m coming from the perspective of reading Atlas Shrugged and the whole book is about, “Oh, this person respects that person.” So in that sense are there any other leaders of industry that he finds to be particularly ingenious?
CL: Okay. So the people he reflects positively upon a lot are these philosophers, Von Mises and Hayek, this guy named Baldy Harper. You hear him talking about that constantly. I’ve never heard him really praise other CEOs. That doesn’t mean he hasn’t; just nothing’s coming to my mind. He deeply respects this guy who worked with his father named Sterling Varner, who no one’s ever heard of. But Sterling Varner was a president of Koch industries, really informed Charles Koch’s views on how to operate strategically. He talks positively about Sterling as a huge influence. I think Charles Koch wants to be remembered as one of the great business figures of our time, and will be for good or ill; people will be talking about him in 30 years. So I think he truly sees himself as a pathblazer.
Audience Member 6: I wondered if—as a way to measure the impact of this company on the world—to do this thought experiment. If Fred Koch had been a progressive and had been supportive of what LBJ and Martin Luther King worked on together and the great society and then if their major asset wasn’t all refinery. To start, how would the world be different today—maybe if they had gone in a different direction—do you think?
CL: What a big question. Can I answer it kind of indirectly in this way? Since 1967, Charles Koch has been working on a breathtakingly disciplined plan to make America more libertarian. He gave a speech in 1974 to a think tank he created, talking about a four point plan to make us more libertarian, fund universities, get lobbyists, use litigation. They stuck to the plan for 40 years. So perhaps if he’d had a different ideology and his dad was a great society guy and that was what was said around the dinner table, who knows. Maybe Charles Koch would be one of the largest liberal donors in the United States. And we might’ve passed a BTU tax in the 90’s. I mean, Al Gore was pushing to put a price on carbon emissions. That’s the whole match right there. It’s just putting a price on being able to pollute carbon into the air in the way that there’s a price put on putting mercury into rivers or things like that. We might have some greenhouse gas regulation now if they were of a different mindset. But I don’t have a satisfying answer to you in terms of what the world would be like. I don’t want to overstate their influence. It is fair to say Koch has built a political influence machine unrivaled in corporate America. Like even Walmart and Lockheed Martin don’t have the same kind of 360 degree machine Koch has. But I’m not going to say that they’ve been the major driving force behind all our politics. In many parts of Kochland, what you see is they reflect capitalism as it’s practiced today. They’re doing stuff that Amazon is doing, ExxonMobil. Koch is more extreme in many regards, but yeah, I don’t want to pretend like they’re the puppet masters behind everything. So is that an unsatisfying pile of verbiage? Okay.
PC: I think we can take one more question from each side.
Audience Member 7: Hi, I heard you speak on another show and you were talking about how Koch Industries specializes in complexity much more than their competitors and they surround markets and they work on long term plans. And I’ve found that fascinating; I’d never heard that before. Could you just talk a little bit about that?
CL: Totally. This is a company born and raised in profoundly complex businesses; operating pipelines, operating refineries is hyper complex and one mistake can lead to catastrophic death, no exaggeration. In a refinery you’re dealing with millions of pounds of highly flammable liquids going through tubes, 24 hours a day, being refined into a wide variety of different products through really complex chemical interactions. And then you’re taking the byproduct of that and making plastics, and then you’re going out into global markets and trading those plastics and fuel products in these super opaque, thinly traded markets where one wrong move can cost you millions of dollars. So Koch’s strategic map revolves around deep learning and analysis. Trading is a great window into this. If you don’t know what you’re doing and you go out into oil markets to trade physical supplies of oil or futures contracts on oil, or—even more abstract—derivatives contracts based on futures contracts, if you don’t know what you’re doing you will be eaten alive in a day. So Koch built a really truly impressive learning culture and a learning machine that operates through its network of trading desks. And so when I say they’re masters of complexity, let’s just look at a Koch commodities trader. This is not a high flying guy in a suit, driving a sports car, doing cocaine and things like that. This is a graduate of engineering from probably Texas A&M or KU or something, sitting in front of spreadsheets all day with a deep, deep knowledge of the actual physical infrastructure of America’s energy system. And they’re not making a bet that oil prices are gonna go up or down. They’re making a bet that oil prices in the Gulf Coast are going to go up in relationship to oil prices in the Northeast, and they’re making bets like that all day long, hoping to win 7 out of 10 times. That mentality is how they engage in politics. They care who wins the White House, but that’s not the whole game to them. They’re engaged every single day in the super complex business of 50 state legislatures, the court system, the United States Congress; they’re engaged after the elections. So does that make sense? And you just have got to read the book too. There’s just so much more in there about how they trade and how they do all these things. And yes, they are masters of complex systems.
PC: Right. Last question.
Audience Member 8: I love that the Kochs are libertarians when it comes to oil and gas, but they really like regulation when it comes to renewable energy. It’s an interesting corporate hypocrisy. But I’m not interested in the Kochs as much as I’m interested in Christopher; you’re a business journalist who spent a decade in this. How did this screw your mind about feelings about capitalism?
Audience Member 9: And related to that, if I may, is who paid you? If funds for investigative journalism are vanishing, who paid you? And how did you support yourself while you were doing this important work?
CL: Okay, so that’s a super important question. That’s actually really touchy, so good job. I’m really perplexed at your question of how this screwed with my head about the failings of capitalism. On the one hand, everybody asks what’s surprised you—interviewing the people who run this system blew my mind. Those traders I was just talking about blew my mind with how intelligent and analytical and strategic they are. I just realized what a sucker I am walking around every day. Honestly. They know so much more about how things work and it really was jarring to me. It changed the way I look at politics. It changed the way I look at markets and that was jarring. And then secondly, I’m thinking now about the blue collar manufacturing workers who worked for Koch in Georgia Pacific. Their work life is more miserable every single day. They make less money today than they did in the 80’s when you adjust for inflation. A whistleblower gave me 10 years worth of safety data that shows the workplace is becoming more dangerous every year. People are getting killed on the job. And sometimes it felt relentless to me. It felt like the things—ordinary people are being crushed and there’s almost nothing that we can do about it even though we have done something about it in the past. I’m not a hopeless person at all; we cleaned this stuff up. The world was like this a hundred years ago then it wasn’t, that wasn’t coincidental. A lot of things played into that, but so I think sometimes it made me feel like there’s a huge pressure bearing down on all of us. Okay. So how did I make my money when I worked on this book? I conceived of this book when I was a reporter at the Associated Press and the Associated Press was falling apart all around me—all my colleagues were laid off—and I applied for a fellowship with this think tank called The New America Foundation in Washington, D.C and the president was one of my role models, this journalist named Steve Coll. And so this is a nonprofit-funded think tank that literally paid me to work on a book for years and I kept waiting for the other shoe to drop. Like someone to try to influence my work because here’s the irony: I’m writing about Koch industries donating all this money to think tanks and all this stuff, and here I am in Washington D.C working for a think tank funded by all these billionaires from Silicon Valley. And I’ve got to say, one of the companies that funded this was so innocuous and so apolitical. I was like, “Who could have a problem with being funded by Google?” This was in 2012. I’m like, “Google’s cool. That’s not going to be a thing. Of course, who’s got a problem with the internet, you know?” Well that changed, but the media landscape is being decimated. It is like the apocalypse out there; it’s super sad as somebody who cares so deeply about print journalism. I dedicated my life to it and we’re all trying to find ways to survive. And this nonprofit-funded model where foundations and billionaires give money to an institution and then the institution employs somebody like me to do journalism, it is workable in my mind because they’ve built a framework of ethics around the money that was very similar to what I experienced in newsrooms where the advertisers gave money, but it didn’t influence the content. And some editors were less honest than others. But as a rule, you had this Chinese wall, et cetera. And so I’ve been in this nonprofit-funded world of journalism ever since, and I left New America and I’ve started a nonprofit-funded group with the University of Missouri School of Journalism, which is where I went. And the media decimation has been 10 times as worse in the middle of the country. So what we’re trying to do is build a nonprofit-funded thing in the middle of the country to support the next Kochland and people doing books like that. But it’s a tricky, weird world because it is funded by people and foundations, and it’s different than your typical news room model. Does that make sense? And the total sad truth is there’s not enough money in books right now for most people to support the work.
PC: All right. Thank you all.
CL: Thank you.
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