* * *
This is what the IBU would get.
They could keep their health care, as Barnard had agreed to. But they would pay 25 percent of the premium costs, not 20 percent. Beyond making the plan more expensive, this also exposed the workers to more risk. If the price of health insurance rose sharply during the life of the contract, the employees were on the hook to pay 25 percent of the premiums, no matter the cost. The IBU would accept Koch’s new attendance policy, unaltered. If a worker had an absence rate of more than 1.9 percent of their total work time, they could face discipline and termination.
There would be no changes to the LMS system. Any notion of transforming the system was discarded by the IBU negotiators as they fought to protect the health care and pension plans. Pay increases would be minimal. The IBU would get a 2 percent raise the first year, a 1 percent raise the second year, 2 percent the following year, and 1 percent the next. The pay raises were the equivalent of treading water. The employees would remain in the IBU pension plan, but they would pay out of pocket to rehabilitate it.
Another clause limited the IBU’s ability to honor picket lines—a crucial provision that was increasingly common in labor contracts around the country. This provision broke the solidarity between unions, making it a fireable offense to refuse to cross each other’s picket lines. The strike at Koch’s Pine Bend refinery in 1972 lasted as long as the Teamsters refused to cross the OCAW’s picket line. Now unions couldn’t honor a picket line beginning from day one without being terminated.
This was the contract that Koch offered in the winter of 2011. Hammond tried to push back. Hammond remembered the Koch team telling him: “We gave you last, best, and final. What don’t you understand about those words? That’s your last offer, the best you’re going to get out of us. If you turn it down, it’s going to get worse.”
The IBU scheduled a new vote on the contract.
* * *
David Franzen entered the union hall that night ready to encourage his coworkers to go on strike. He thought the company was bluffing and that it wouldn’t dare to lock out the workers or replace them. Even if it came to that, he seemed willing to take the risk. But before Franzen could take the stage and address his coworkers, Gary Bucknum stopped him.
“I had to get him off to the side,” Bucknum said. Bucknum told Franzen: “I recommend that you take it. Because it’s all downhill from here.”
When Steve Hammond took the stage to address his fellow union members, he said essentially the same thing. Hammond had a defeated air about him. He became a union official buoyed by hope, determined to make a change. In December of 2011, the best he could achieve was an unhappy compromise and partial surrender. He told the IBU members to vote in favor of the contract because they had no better options.
There was rage among the members. They had fought for months. They attended rallies. They hadn’t had a pay raise in a year and a half as the bargaining dragged on. Most poisonous of all was the feeling of dashed expectations. The union was supposed to make life better for its members, and the union had failed. The members had voted down the previous contract, unanimously, and now they seemed to have nothing to show for it.
Alan Cote, the IBU president from Seattle, stood in front of the crowd and explained to them the hard realities of bargaining against Koch. People didn’t want to hear it. “One guy stands up and challenges the president of the union, like, ‘What the hell do you know? You’re just a cook from a towboat, and you ain’t shit to me!’ ” Bucknum recalled. The badgering continued. For all their work, Hammond, Franzen, and Bucknum were rewarded with the contempt of their peers.
But even this contempt could not be translated into concrete action. The notion of striking was inconceivable. There were mortgages to pay. Health insurance to keep. Credit card bills. Tuition checks. The members of the IBU had no choice but to stay on the job. They voted to accept the contract.
* * *
Gary Bucknum decided not to run for reelection. The sleepless nights, the working weekends, and the disappointment were too much. Hammond, however, did run for reelection, and won. He had been whipped at the bargaining table, and he knew it. The sense of hope that led him to become a union leader now became a sense of resignation. He became a man who was playing a defensive game and who was quick to admit that he was losing it.
But there was evidence that the IBU’s struggle was not for nothing. Hammond and his team did win victories for their members, even if those victories seemed small. Ron Teninty, the University of Oregon professor, translated into a spreadsheet all the available IBU contracts for Georgia-Pacific’s Front Avenue and Rivergate warehouses between 1975 and 2016. (Some contracts during the 1980s and 1990s were missing and not included in the analysis.) Teninty found that the IBU had won modest gains for the warehouse workers between 2010 and 2016. He included wages, health insurance, and pension benefits into an estimate of warehouse worker earnings, and found that their total hourly compensation rose from $25.37 an hour in 2010 to $34.50 in 2016.
When adjusted for inflation, the workers’ hourly pay rose, but only by 8 percent over six years, or roughly 1.3 percent a year. In later years, a larger share of those pay gains went into the cost of maintaining health insurance. It hardly felt like spending money in the workers’ pockets. Looked at from a longer time frame, their compensation had only risen 9.5 percent since 2000—a gain of just 1.7 percent a year, on average. These gains were marginal, to be sure, but many nonunion workers suffered worse.
Still, the warehouse workers were losing ground over the long run, and they knew it. When adjusted for inflation, the workers were earning 21.5 percent less in 2016 than they’d earned in the contract that expired in 1981. For employees like David Franzen, this wasn’t an abstract concept. He worked at the warehouse in the eighties. Thirty years and countless hours of labor later, he was given a significant pay cut for the effort.
When the negotiations were finished, Franzen went back to driving a forklift. During the year and a half of negotiations, Franzen said he began to be cited for violating the LMS rules. He’d always ranked high in posted delivery times, but now he began to get dinged for smaller infractions, such as being outside his work area at inappropriate times. He argued against these citations and claimed they were inaccurate. But his temper eventually boiled over. He cornered a manager one day and berated him for what Franzen perceived to be unfair treatment of fellow employees. Later, Franzen saw this manager at a bar and invitations were exchanged to go outside. No one went outside and no fists were swung, but the damage was done.
Franzen was put on a “last chance agreement,” meaning that one more work violation could get him fired. He said he remained on that agreement for six years. He had little doubt as to why he was getting in more trouble at work. “As far as being the lead negotiator—they had it out for me.” Koch Industries disputed that Franzen was disciplined for LMS violations and said he was only put on “last chance” status for losing his temper with a coworker. The company fired Franzen in early 2018 when he failed to return to work after taking leave for a worker’s compensation claim.
Ken Harrison retired in 2012 and opened a labor negotiating consulting firm. When asked about the workers at the IBU, Harrison seemed genuinely sympathetic. But Koch Industries had determined a market price for their labor, and that’s what it paid. “People always want more,” Harrison said.
* * *
It is unclear if Charles Koch was even aware of Georgia-Pacific’s battle to tame the IBU. It was just one contract negotiation among many. But even though the fight with the IBU was a small part of Koch’s overall operations, it was a microcosm of the bigger battles that Charles Koch and his company were just beginning to fight.
Charles Koch had been disturbed by the election of Barack Obama, and the ascendancy of progressive politics in America. Since the 2008 election, Charles Koch’s deepest concerns had been confirmed, and then heightened. The stimulus plan passed in early 2009 was worrisome e
nough. It helped entrench the notion that the federal government had a large role to play in solving economic problems, while simultaneously adding significantly to the nation’s debt. Charles Koch believed that each dollar in extra debt only increased the likelihood of further tax increases.
And the stimulus was just the beginning. Obama initiated a national fight over health care that was not dissimilar to the fight between Ken Harrison and Steve Hammond over the IBU health plan. Obama pushed for a national health care system built on the same ideological foundations as the IBU plan—Obama’s Affordable Care Act was built on the premise of solidarity. While there would be sliding scales of cost for the plan, it was designed to provide every American with health insurance, regardless of their income. To pay for this system, the Affordable Care Act levied more taxes on the richest of Americans, such as Charles and David Koch. The entire framework of the Affordable Care Act went against everything Charles Koch had been fighting for. Rather than having people pay for health care out of pocket, giving them “skin in the game,” the health care plan entrenched and increased a publicly subsidized insurance system that distorted prices and ruined proper economic incentives. The Affordable Care Act was passed in March of 2010.
And even this was not the end. The Obama agenda continued to roll on, backed by Democratic majorities in Congress. The administration targeted the banks next, imposing new regulations to cut back on speculation and derivatives trading. Regulators at the Commodities Futures Trading Commission started contacting Koch Industries, asking the company about its oil trading strategies. The tendrils of creeping government appeared in almost every industry where Koch operated.
But all of these things were insignificant compared to the biggest threat, the largest battle that loomed in front of Charles Koch in 2010. The Obama administration planned to attack the very core of Koch Industries’ business. The next item on the Obama agenda was to slow carbon emissions from the United States and around the globe. If this effort was successful, it was not at all clear how Koch Industries could continue to exist in its present form. At the very least, any hard cap on carbon emissions could cost Koch Industries hundreds of billions of dollars, if not more.
The Obama agenda put Charles Koch in the unfamiliar position of being “the holdout.” Now it was Obama, and his supporters, who sought to assemble a political pathway, paved with votes in Congress, to take America toward a future that Obama envisioned. This future relied less on fossil fuels. Charles Koch intended to deny Obama this path.
Barack Obama had seemingly unstoppable momentum behind him. But there was no indication that this intimidated Charles Koch. Perhaps that was because he’d been preparing for such a fight for at least twenty years, building a political influence operation in Washington, DC, that was without parallel in modern America. When it came time for Charles Koch to play the holdout, he was supremely prepared.
* * *
I. It’s true that pipeline companies can use eminent domain authority to force property owners to hand over rights to their land, but that option is reserved as a last resort. Even then, it is not free, as, under the law, the property owners must be offered “just compensation.” With eminent domain, the cost and time involved in pipeline construction increase dramatically if property owners hold out for higher prices.
CHAPTER 19
* * *
Warming
(2008–2009)
Every year, in December, Charles Koch hosted a private party at his home. It was a gathering for the elite group of Koch Industries employees who donated the maximum legal amount of money to Koch Industries’ political action committee. As the evening got underway, a parade of cars drove through the gates into the wooded compound of Charles Koch’s childhood home. The attendees parked their cars in neat rows on the spacious lawn and walked up the driveway through the winter wind and into the warm, brightly lit entryway.
There was a cheerful cacophony inside, with about two hundred people milling around in large rooms and hallways. The attendees were employees, executives, and their spouses, dressed in their holiday best, eating heavy hors d’oeuvres from the trays carried by uniformed waiters. Charles and David Koch held court in the living room, sometimes standing side by side, as guests filed past to pay their respects. Charles was courteous and smiling. But he also had a habit of managing the party like a company meeting. When David Koch and a guest began talking at length about David’s art collection, Charles Koch interrupted to remind the pair that there were guests waiting behind them in the line. “Charles says, ‘David, you’ve got to move it along,’ ” one guest recalled. “That’s kind of Charles. It’s kind of like ‘This is the process. We’re greeting everybody. We’re having pleasantries.’ And then they move.”
There was a sense of exclusivity, of special belonging, that animated the people in the room. The holiday party was held around the time of the annual board meeting, so many board members and senior executives found time to attend. To receive an invite, an employee needed to donate $5,000 during the year to Koch’s PAC. The money was bundled and donated en masse to political candidates who were favored by Koch’s PAC officials. It was understood that the PAC always needed donations and that Charles Koch paid close attention to its performance. Having one’s name listed in federal campaign disclosures was something akin to being listed in a country club directory. It looked good. There was another, unspoken perk to donating: it indicated that the employee in question had just finished a profitable year and had a big bonus to show for it. When employees didn’t show up from one year to the next, it created suspicion that maybe their bonuses hadn’t been so fat.
While the gathering was always festive, there was an air of tension hanging over the party in 2009. The attendees had put lots of money into the PAC during the previous election—a total of $2.6 million in 2008—and yet Barack Obama still won and Democrats held large majorities in Congress. Virtually every political cause that Koch Industries cherished was in retreat. The Republican Party seemed in danger of becoming a permanent minority. The Libertarian Party didn’t even rate as a political afterthought.
In the corner of Charles Koch’s living room, there was an elevated area that held a bookcase, filled with collector’s editions of Charles Koch’s favorite thinkers, like Hayek and von Mises. The collection seemed like a museum piece now, a collection of antiques that were being left behind by the march of history. The guests stood in clusters near the books, commiserating about the state of politics, the free-falling markets, and waiting to hear what Charles Koch might say about it all.
Every year, Charles Koch made a short speech at the party. Sometimes he was joined by Richard Fink, the top executive over Koch’s political operations. Charles Koch’s speeches tended to be anodyne and courteous. He thanked the gathered employees for their support and reminded them how vital it was to maintain economic freedom in the United States, both for the long-term health of Koch Industries and for the populace. In 2009, however, Charles Koch’s speech was urgent. He felt that the future of America was imperiled. He thanked his guests for their contributions, but the guests understood that the political fight was just beginning.
One threat from the Obama administration seemed more dangerous than the rest. It was the threat of a massive new regulatory regime to limit greenhouse gas emissions that trapped heat in the Earth’s atmosphere. The threat of such had been slowly building for decades, under both Republican and Democratic administrations. Charles Koch fought against it the entire time. Now the threat appeared to be imminent. While both Obama and his Republican opponent, Senator John McCain, campaigned on a promise to limit uncontrolled carbon emissions, Obama made carbon control a pillar of his platform. Since the very month Democrats took control of Congress in 2006, they started working on a carbon-control regime. That effort was well under way, with a proposed law working its way through Congress that was more than a thousand pages long. With their wide majorities in the House and Senate, Democrats were ready to hand the bill to
a president who was eager to sign it.
There was a belief, within Koch Industries, that the carbon-control regime could put the company out of business. It was impossible to overstate the stakes of the coming fight. The bill in Congress sought to wholly reorganize America’s energy system. If this happened, there was reason to believe that the world would follow America’s lead. There were already two global treaties seeking to impose carbon limits worldwide—one signed in Rio de Janeiro in 1992 and the other in Kyoto in 1997—and the American regulatory regime could be quickly incorporated into this global framework.
A carbon-control regime would expose Koch to a brand-new regulatory structure, but it could also choke off decades of future profits as the world shifted away from burning fossil fuels. Koch’s sunk investment in the fossil fuel business was measured in billions of dollars, reflected in the value of its two oil refineries, pipelines, and other assets. The future revenue to be derived from these assets arguably numbered in the trillions of dollars in future decades.
In 1989, Charles Koch was caught unprepared when the US Senate investigated oil theft on Indian reservations in Oklahoma. Charles Koch learned from the experience. Things were very different in 2009. As recently as 1998, Koch Industries spent as little as $200,000 a year on lobbyists in Washington, DC. By 2005, Koch was spending $2.19 million. When the Democrats took over Congress in 2006, the spending exploded, reaching $3.97 million in 2006, then $5.1 million in 2007. The prospect of an Obama presidency intensified the effort. Koch Industries spent $20 million on lobbying in 2008. Koch augmented these lobbying expenditures with campaign donations. In 1998, the Koch Industries PAC spent just over $800,000. In 2006 it spent $2 million. In 2008 it spent $2.6 million.
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