Democracy in Chains

by Nancy MacLean

  Among the investors in Henry Manne’s vision, alongside the blue-chip corporations and the Earhart Foundation, a long-standing libertarian funder, was a relative novice: Charles G. Koch.39

  CHAPTER 9

  NEVER COMPROMISE

  Charles Koch did not just become a convert to the ultra-capitalist radical right. He is the sole reason why this movement may yet alter the trajectory of the United States in ways that would be profoundly disturbing even to the somewhat undemocratic James Madison, I believe—and would unquestionably take the “demos” out of American democratic governance. How Koch came to know libertarianism is easy to answer: at his father’s dinner table. Less obvious is why he continued to pour untold millions of dollars into this cause, even as he later acknowledged that for some three decades it produced few results. He made clear he was looking for something, but what that something was, beyond a “technology” of revolution, remained unclear.1 When and where he found it is not: in the ideas of James Buchanan. In the eventual merger of Koch’s money and managerial talent and the Buchanan team’s decades of work monomaniacally identifying how the populace became more powerful than the propertied, a fifth column movement would come into being, the likes of which no nation has ever seen.

  At first it seems hard to imagine why a man who had so much would become consumed with a need to take down those who just wanted “some more” for themselves (in the immortal words of Oliver Twist). The answer, to the extent that one can be found in the mysteries of individual human personality, lies in a childhood in which fighting was a leitmotif and government was always the enemy.

  Charles G. (de Ganahl) Koch was the second of four sons of Fred Chase Koch, a man who made his millions running an oil-refining business. Through much of his youth, Charles and his brothers watched their father fight round after round of what no doubt seemed to the family, despite its wealth, a David-and-Goliath-style legal battle. It lasted twenty-three years. On one side was a behemoth known as Universal Oil Products, which was owned by a group of major corporations, including what remained of John D. Rockefeller’s Standard Oil, and which had monopolistic tendencies. On the other was Fred Koch.2

  As the plaintiff, Universal Oil claimed that the innovative technical process that had already made Fred Koch a wealthy man violated its patent rights. Koch was up against an adversary that had unlimited funds and therefore access to the best lawyers. They won virtually every lawsuit they filed for patent violations against new competitors. But Koch did not buckle. His attorney argued that his accusers kept control of the industry through a kind of government-backed blackmail, such that “a small refiner . . . is told that if he does not take a license [from the patent-owning company] he will suffer the penalty.” At trial, Koch lost. His appeals failed as well. But later he learned, as the investigative reporter Daniel Schulman has put it, that “the ruling that had sealed his company’s fate had been bought and paid for” by the company that sued him. It took two decades and the exposure of that corruption, but Koch ultimately prevailed.3

  Universal Oil Products engaged in what Buchanan’s coauthor Gordon Tullock would later define as (and an adult Charles Koch would revile as) “rent-seeking behavior.” It referred to all attempts to extract benefits (financial or otherwise) through manipulation of the political or legal system that exceeded what those seeking these advantages would have been able to earn through their own productive activity.4 Of course, what happened to Fred Koch wasn’t rent-seeking behavior; it was criminal behavior. If Universal’s lawyers felt confident that the courts would have sustained their claims, then Universal would not have resorted to bribery. One can only wonder if the course of both Fred’s and Charles’s lives might have been somehow different had the judge in the case refused the bribe and heard the case on its merits.5

  Then again, there is no gainsaying the fact that Fred Koch did not need a lawsuit to lead him to the right. When asked to describe his father, Charles called him “a John Wayne–type figure, charismatic and forceful,” someone who taught his boys to love liberty, venerate hard work, and passionately hate collectivism. “He was constantly speaking to us children about what was wrong with government,” recalled David Koch, one of Charles’s two younger brothers. But he was even more derogatory about those who turned to government for help, expressing his utter contempt for those who had a “dependence on government” or were even temporarily “feeding at the public trough.”6

  Making and enjoying money was never enough for Fred Koch, as it would not be enough for the son he groomed to be his successor. He had to have things his way. In 1958, after his victory against Universal Oil, Fred co-led a referendum drive to alter the state constitution in order to make it harder for unions to take root in Kansas. Fred was a passionate advocate of so-called right-to-work laws. But what he is most remembered for is his cofounding of the John Birch Society earlier the same year, declaring that he was “thoroughly disgusted with the Eisenhower variety of Republicanism.”7

  Charles was in graduate school at MIT at the time his father helped launch the society, and was keeping his distance from the stern hand of the family patriarch. By all accounts, Charles continued to be more interested in things—above all, how they worked and how to make them work more efficiently—than in philosophy; he earned three engineering degrees before departing from MIT. He liked living in Cambridge and chose to remain in the Boston area in a consulting job after graduation, beyond the reach of the man who had been so bent on hardening him that he had sent Charles, against his will, to a string of boarding schools as a preadolescent and then to an Indiana military academy far from home for high school.8

  But Charles was raised to respect his parents. So when Fred Koch, ailing, called upon him to help with the family business—or see it sold off—the prodigal son returned to Wichita.

  The company he gradually took over had, at the time he returned, annual revenues of $70 million. In 1967, after two heart attacks felled Fred Koch, Charles, then still only thirty-two, succeeded his father. Through the aggressive pursuit of any promising technological breakthrough, and the determined application of it no matter how long it took to yield results, combined with shrewd market and managerial strategy, he would turn Koch Industries into the second-largest privately held company in America—with yearly revenues of more than $115 billion (well over a thousandfold increase from what it was when he took over) and some sixty-seven thousand employees in almost sixty nations.9 Indeed, within a decade of his assuming leadership, and at a time when America had only five billionaire families (four of whose fortunes went back to the Gilded Age), the Kochs had already reached the top twenty in wealth through Charles’s deft navigation of the family’s original industry, crude oil marketing, and smart expansion into other domains.10 Keeping the company private, he also maintained control.

  Koch’s competitors learned never to underestimate his determination, his skill at seeing many moves beyond them, and his virtually infinite patience. Playing the long game is his forte, something other Americans are just beginning to understand.

  • • •

  As smart as Charles Koch was as an engineer and entrepreneur, socially he was not very adept; he would not marry until he was forty-one years old. With the business booming and nothing much else to take up his time other than what he called a “compulsion” to learn how the world worked, he devoted more and more of his time to reading books and articles that would enhance his “understanding [of] the principles that lead to prosperity and societal progress.” He restricted his study in only one way: to thinkers who believed as he did that the foundation upon which prosperity and social progress had to be built was unhampered capitalism. One work particularly influenced him: F. A. Harper’s Why Wages Rise, a free-market primer published in 1957.11

  “Baldy” Harper is one of the least known names in the pantheon of radical right thinkers. But he was a founding member of the all-important Mont Pelerin Society and was Charles’s
cherished mentor. An agricultural economist by training, Harper was especially concerned with how collective organization among workers affected wages and the “cost of being governed.” For the worse, he concluded. Harper compared the impact of unions to that of “a bank robber.” They enabled, he sought to show, “a few persons, through power and special privilege” to “gain some short-term advantages at the expense of others who work.” In a true, undistorted market society, wages should rise only with increases in productivity. Harper also declaimed against the “little corporate welfare states” created by union contracts that included such fringe benefits as health insurance, pensions, and others. “A small welfare state is perhaps better than a large one, of course,” he said, but “it is still an evil,” as it is “the essence of communism-socialism.” For another thing, such benefits “tend to freeze a worker in his job,” thereby “compris[ing] a serious threat to our progress” by inhibiting movement from one job to another. The right way to do things was to put individuals back in charge of negotiating and spending their earnings, and let them purchase what services they needed as individuals in the market, not look to the political system to supply them.12

  Baldy Harper also hated the idea of “government schools.” He fulminated against “financial need” as a criterion for college scholarships as a “Marxian concept,” warning, “‘Need’ grows without bounds whenever it is severed from a responsibility for acquiring satisfaction through one’s own endeavors.”13 Harper also worried about moral deterioration in modern society. He claimed to have evidence in his files showing “that the shorter work week is an important source of crime,” and that “compulsory unemployment devices, such as child labor laws,” and mandatory schooling “during teen-age years, are important causes of juvenile delinquency.” By the same token, he argued that so-called government “help” in times of economic depression, such as the 1930s, was “dangerous.” The economy would quickly recover, Harper assured, if each individual were “free to continue to work at the best price a free market will offer him.” However low that wage might be, allowing the market to right itself would lead to restored prosperity; the key was never to allow wages to stick at too high a level, as with minimum wage laws or union contracts. Such true freedom, with relations between individual employees and employers undistorted by group power or government action, Harper rhapsodized, “would be as near a utopia as can be hoped for in economic affairs this side of heaven.”14

  Harper’s thought moved Charles Koch deeply. It echoed his father’s core teaching, yet was free of the embarrassing baggage of the John Birch Society, such as the founders’ suggestion that President Dwight Eisenhower might be part of the Communist conspiracy. Harper also conveyed ethical urgency about acting on libertarian values, among them emancipation from taxation. “Government in the United States is now taking from persons’ incomes an amount equivalent to the complete enslavement of 42 million persons,” Harper wrote in another work. “Compare that figure, and the concern about it, with the figure of 4 million privately-owned slaves in the United States at the outbreak of the War Between the States!” Why did so few see the outrage of it? “The power to tax is the power to destroy,” he wrote, borrowing words from Daniel Webster and Justice John Marshall in McCullough v. Madison, and taking them to ends such early Americans could scarcely imagine. Democratic government was, Harper argued, increasing “the power of certain persons to destroy other persons.” It was time to fight such “special privilege,” stop “slavery,” and “restore liberty.”15

  Harper described the world as Koch understood it, a world in which entrepreneurs were drastically underappreciated and overcontrolled. And he drew a vision of what a society might become if the entrepreneurs were freed from both interference and government-granted favors: a paradise of individual freedom, world peace, and social progress. “Goodness in man can only grow in a climate of liberty” was the message Charles Koch took from his “beloved” teacher: only if one were totally free of coercion and fully self-responsible could one make truly ethical choices. Not surprisingly, Koch credited Harper with the “life-changing” teaching that made the quest for economic liberty the passionate mission of his life.16

  From Baldy Harper, Koch found his way to Robert LeFevre, a fiercely libertarian onetime businessman who had founded what he named the Freedom School in rural Colorado in the late 1950s to teach an antigovernment, property-supremacist vision of liberty. LeFevre was one of the northerners excited by Virginia’s turn to private schools, and was certain that the South’s angry whites could be won over to the libertarian cause. He promised Jack Kilpatrick to help by spreading the case that “our government schools have failed us.” Americans, he would teach, needed “private and independent schools, completely free from government domination.” LeFevre’s broader “Platform for a Free America” blamed the Wagner Act for having “enslaved millions” to “Labor Bosses,” denounced Social Security as “unsound” and “immoral,” and called for “constitutional limits . . . both on taxing and spending.”17 LeFevre’s vision, notes one inside history of the libertarian movement, “was like catnip to a certain class of businessmen.” Charles Koch was among them. He was so keen on the Freedom School that he persuaded his younger, less political brother David to accompany him on a two-week session at the school; Charles went on to join the board of trustees.18

  Not surprisingly, then, Koch’s first major philanthropic cause was the Wichita-based Center for Independent Education, which pushed private schooling and voucher programs nationwide. It grew out of the Wichita Collegiate School, conceived by his father and Robert Love, his father’s partner in the local John Birch Society, to provide a liberty-minded alternative to state-run schools in the wake of Brown v. Board of Education. The school’s motto was “Proba te Dignum”—“Prove Yourself Worthy”—that running theme employed by Jack Kilpatrick for why the federal government had no business helping African Americans: because they should “earn” any improved standing.19

  In 1965, Koch, having become convinced that finding new thinkers and leaders for the fight for economic liberty was the most pressing need, began contributing substantial amounts to Baldy Harper’s organization, the Institute for Humane Studies (IHS), to locate and cultivate these much-needed thinkers and leaders. It was the direct successor to the William Volker Fund, which had brought so many American scholars into the Mont Pelerin orbit, Buchanan among them. (In a fit of the kind of imperiousness to which libertarians seemed especially prone, Volker’s president “blew the whole damned thing up,” according to one longtime staff member. The IHS took over its mission and attracted its former supporters.)20

  After joining its board the next year, Koch never left. He devoted not only millions of dollars to the IHS but also the scarcest arrow in a CEO’s quiver—his time and his focused attention, even serving a term as president after Harper’s death. IHS remained the organization closest to his heart, and he its main benefactor. Koch believed that, as the institute expressed it, “ideas” are “the greatest power.” The mission of IHS was, through “basic research,” to “search for important truths” to guide the pursuit of liberty. It would do that by “the training in depth of highly talented persons” with “the greatest promise of leadership.” That would take time, Koch and Harper knew, because “ideas do not bear fruit immediately.” One had only to look at Marxism, decades in development before it bore its “bitter fruit.”21

  It was around this time—1970, to be exact—that Koch was admitted to the Mont Pelerin Society. It was not an easy society to join, even for a man with his wealth and views. Its bylaws specified that any candidate must be nominated by two members and approved by four-fifths of the sitting directors of the association. The new prospect must wait a year for admission, during which time there must be “sufficient enquiry, including where possible among his fellow nationals” to confirm his “suitability.” (Virtually all the members were men, so the pronoun is apt.) Dues were modest for a pro
-enterprise cause: $20 a year in 1976, about $125 in today’s dollars. Once Charles Koch joined, the groups he funded made regular use of the society’s newsletter to advertise their events, publications, and employment opportunities.22

  Urging Koch on in his chosen vocation was something else as well: his belief that his own growing financial success as one of the richest men in the world already justified his slowly taking over the libertarian cause and shaping it to his will. For in his own mind his success confirmed the quality of his intelligence and his fitness as a leader. From Ludwig von Mises, Koch had learned that entrepreneurs were the unsung geniuses of human history, deserving of a kind of reverence reminiscent of the old Puritan doctrine that equated earthly success with divine favor.23

  Perhaps this arch sense of his own achievement also helped explain the lack of charity (or what most would call compassion) for nearly everyone else—not just wage earners but also businessmen who did not see things as he did. He came to disdain those who ran publicly traded corporations. Such people mistakenly imagined that because they possessed elegant high-rise corner offices, they were his equals, especially the moderate managers who then played an important role in the Republican Party. By his lights, they were just hired hands, beholden to shareholders and lacking in appreciation of true liberty. No, the real heroes were men like himself, from the Midwest, the West, and the South, who had built their own businesses, kept them private, and were not inclined to compromise.24