Sept. 25, 2019
Koch Brothers Influence
With the death of David Koch (79) in late August, the time seemed ripe to talk about two books and what they reveal about the Koch Brothers and their business, Koch Industries: they describe how these two brothers have shaped the American economy and political world. While not directly horse related, the books reveal how their decisions and actions have affected much of the current climate in which we find ourselves.
The two Koch brothers, David and Charles created a vast political network of very wealthy contributors who were infamous for the secret funding and fiercely negative political advertising, often against Democrats. This network and its financing is revealed in Jane Mayer’s book Dark Money.
In 1980 these two enormously rich owners of a Kansas-based oil company decided they would spend huge amounts of money to elect conservatives at all levels of U.S. government. David Koch ran for president that year under the libertarian ticket. He didn’t win, but after the campaign they concluded that they could invest in the campaigns of others and buy their way to political power.
By 2010, Republicans dominated state legislatures, controlled a majority of governorships, had taken control of one chamber of Congress, and were on their way to winning the other. The brothers had raised hundreds of millions of dollars to elect people who reflected their own interests and would create public policy accordingly. Mayer concludes from her research for that book that the Kochs and their allies have created a private political bank capable of bestowing unlimited amounts of money on favored candidates, and doing it with virtually no disclosure of its source. They have established a network of wealthy patrons who wield enormous influence in American politics. Through their network, they have access and influence to policy makers that ordinary citizens cannot imagine.
According to Mayer, the results from this undue influence on American politics are: profound economic inequality; even modest environmental efforts to address climate change have been defeated; billionaires pay a lower tax rate than middle-class workers; deregulation of banks and “Wall Street” institutions that led to the 2008 financial crises; deregulation of environmental laws that led to increased pollution.
The latest book on the Kochs is Christopher Leonard’s Kochland: The Secret History of Koch Industries and Corporate Power in America. This is an excellent companion piece to Mayer’s investigative book on the Koch brothers’ politics and delves into how Koch Industries was managed and developed into the conglomerate that made $billions, and the ways they manipulated politics to enlarge their fortunes.
The Koch brothers’ father, Fred Koch, was a co-founder of the John Birch Society, had assembled a mini-empire of ranches, factories and oil pipelines, and then Charles and David “supersized” this fortune. They also expanded – into fertilizer, paper products, options trading, and greeting cards.
Leonard spent seven years researching the company and interviewed refinery operators, warehouse workers, options traders, and whistleblowers. Leonard was interviewed on “Fresh Air” on August 13, 2019. Leonard is a business reporter who covered agribusiness for the AP.
Leonard told interviewer Terry Gross that in his research for the book he came to realize that “the story of Koch Industries over the last 50 years really is a history of American capitalism during that time….This is a massive company whose annual revenues are larger than that of Facebook, Goldman Sachs, and U.S. Steel combined. …The company is spread throughout our entire economic system.”
He says that the effects of this mega-corporation are: blue collar manufacturing workers have seen their labor unions get torn apart and are earning less money today than in the 1980s. Private equity deal makers at Koch look for smaller companies to buy, which they load up with debt and then cut costs and increase production – again to the detriment of workers. And Koch maintains one of the largest corporate lobbying operations in the U.S. – “a corporate influence machine that’s unrivaled by any others in corporate America,” writes Leonard.
Leonard says conglomerate is a good descriptive of the company, but he prefers to call it a private equity firm. “I think of Koch Industries as a giant pool of money that is looking to invest and reinvest constantly to boost long-term profitability. The firm is always looking to acquire, expand, reinvest and grow, and it transforms,” Leonard said.
Leonard said that Koch controls the many of the products that people use on a daily basis. For example, Koch Industries owns Georgia-Pacific, which makes a wide array of paper products, but is also the wood and pulp industry. Koch plays a role in the business of delivering natural gas and electricity to homes and businesses. Clothing contains items made by Koch. Koch owns fertilizers, which make food and crop production possible. Koch owns large oil refineries and large commodities operations. “This is an omnipresent firm,” Leonard described.
Leonard found that Koch is shielded from economic loss through a kind of legal structure called a corporate veil that keeps one business within Koch separate from another, Leonard explained. “The company creates hundreds of nominally independent corporations, LLCs, S corps and other corporate structures that it can use to buy up other firms, knowing that if one of those firms goes broke, and creditors try to come after the money Koch borrowed to buy it, Koch is shielded, protected,” said Leonard. Regulatory and financial laws are so complex, with loopholes, that they can be manipulated.
And example that Leonard gave is when Koch Industries helped deregulate the electricity markets in California in 2000. “When the deregulated markets for electricity got up and running in California, Koch Industries and other traders began immediately to manipulate those markets.” Leonard said he has combed through thousands of pages of FERC (Federal Energy Regulatory Commission) investigations and court hearings and found that Koch traders unlawfully took hundreds of thousands of dollars in profits illegally.
Since the 1970s, Koch has been one of the world's largest traders of energy supplies, Leonard told Gross. They are also one of the largest registered polluters in the United States, according to EPA documents. They're one of the largest emitters of various pollutants, e.g., from chemical plants and fossil fuel refineries. “Koch has an enormous, almost incomprehensibly large investment sunk into the fossil fuels business,” Leonard said.
“So when you look at what would happen if we put a price on carbon emissions and greenhouse gas emissions, the real threat is that that would reduce demand for fossil fuels. If that happens, the value of this massive, industrial, globe-spanning infrastructure declines dramatically. And Koch saw the efforts to put a price on carbon emissions as an existential threat to the company,” Leonard explained.
“The Waxman-Markey bill (that would put a price on greenhouse gas emissions and carbon pollution) was introduced in Congress in 2009. …And So Koch has facilitated popular political movements, such as the Tea Party, in order to achieve its own lobbying goals” and defeat the Waxman-Markey bill.
Leonard explained further: One thing the Kochs did to kind of create this populist or pseudo-populist movement against cap and trade was to teach volunteers how to call talk radio stations and get on the air. In addition, Koch Industries arranged a study to be done by a group called the American Council for Capital Formation and Koch asked them to produce a report on global warming and paid for it surreptitiously. The report was extraordinarily negative on the economic effects of the cap and trade bill. And then Koch used a political think tank group called the American Energy alliance to package the report into political ads and those ads were targeted against particular legislators.
Both books reveal the many ways that the Koch brothers and their company have affected our lives – without our even knowing it!
Read a full transcript of the interview at: https://www.npr.org/2019/08/13/750803289/kochland-how-the-koch-brothers-changed-u-s-corporate-and-political-power
Read the Fresh Air interview with Jane Mayer from January 2016 at: https://www.npr.org/2016/01/19/463565987/hidden-history-of-koch-brothers-traces-their-childhood-and-political-rise
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