Founding Oligarch: Charles Koch’s Empire in the Shadow of the Osage – Part I
Originally published at Deep City Chronicles
WICHITA, KANSAS – Koch Industries’ interlocking web of companies, foundations and front groups touch everything from the plastic cups you put out at parties, the gasoline you pump into your car, the votes you cast at the ballot box and even the wages your employer is willing to pay you. In short, this privately held enterprise, owned by two brothers, exerts arguably more influence over your life than the government they and their network of like-minded billionaires have been trying to undermine for over forty years.
Through theft, deception and secrecy the Koch’s have built a capitalist juggernaut and infiltrated the institutions of democracy in order to propagate its plutocratic designs upon the country; availing itself of a fringe political ideology rooted in the antebellum South, they have wrought environmental devastation, eviscerated the middle class and have managed to shift the political discourse in America to favor their self-serving, radical free-market policies.
Despite appeals to notions of liberty and so-called “sound economics”, at the core of the Koch business philosophy is little more than a justification for rapacious greed and a pathological inability to share. Those of us downstream from their unimaginable wealth are left to deal with the consequences of their massive, unchecked and wounded egos. But, it is only by dispensing with the pseudo-academic, quasi-legal arguments crafted by the purveyors of Koch’s proto-fascist gestalt, that we can begin to see the contours of their totalitarian dream.
Spiking the Water
In April 2014, the city of Flint, Michigan switched its water supply from Lake Huron to the contaminated Flint River. By June people were dying from a Legionnaires-associated disease caused by bacteria found in the water supply. The crisis became a national scandal as more people got sick even as municipal leaders claimed the water was safe to drink.
Five years later, Flint is still reeling. A fact recognized by the city’s new Mayor, Karen Weaver, who swept into office on a wave of anger and resentment. “It’s a community that’s still dealing with the trauma and the aftermath”, she told the New York Times “of having been poisoned at the hands of the government.”
But, the government was actually the first victim of this tragedy. Hidden in the depths of the rancid waters that killed twelve people and sickened nearly a hundred more, none other than the Kochtopus and its vast political influence machine thrashed about.
In the state of Michigan, it exerted considerable influence in the governor’s office through the Koch-funded and Koch-staffed think tank, Mackinac Center, which had been pushing for legislation that would place any community facing a “financial emergency” under direct state control and, in turn, hand over extraordinary powers to emergency managers. Among the powers accorded to these unelected bureaucrats was selling off local resources to private companies, outsourcing services and changing municipal suppliers at will.
True to the words of one state governor, who stated unequivocally, “When the Mackinac Center speaks, we listen”, their legislative recommendation made it into law and many cities were placed under this regime. More than half of the state’s black voters would come to be governed by such managers. The one assigned to oversee Flint made the fateful decision to switch the city’s water supply to “save money”.
Mind of the Kochtopus
The vital role Koch played in the Flint water crisis received little, if any, media attention because, as in this case, most of their machinations are carefully concealed behind front-groups, innocuous-sounding foundations and ostensibly noble causes.
Charles Koch began building this network, dubbed “Kochtopus” for its monstrous reach and multiple tentacles, almost as soon as he took the reins of Koch Industries in the 1970’s. His first mentor was a man by the name of F. A. “Baldy” Harper, author of a “free market primer” called “Why Wages Rise” in which he derides unions, public schooling and any kind of labor protection laws. A founding member of the Mont Pelerin Society along with Koch’s other idols F.A. Hayek and Edwin Von Mises, Baldy Harper would go on to found the Institute for Humane Studies with Koch’s generous and permanent funding.
The Mont Pelerin Society, in fact, would be the fountainhead for many beneficiaries of Koch money. Formed in 1947, the Society was the result of an historic gathering in Switzerland of free-market intellectuals led by their “guru”, F. A. Hayek, prophet of the rich propertied classes in a time when the rising power of unions and growing regulatory framework threatened to undercut their position. The infamous Chicago School of economics and its most polarizing figure, Milton Friedman, was a direct outgrowth of this post-war egghead club.
Friedman, however, was not radical enough for Koch and considered his approach to economics too technical to fulfill the more fundamental, philosophical and transformative changes Charles Koch wanted to bring about in America, turning his attention to other branches of the Mont Pelerin tree.
He found what he was looking for in another University of Chicago grad, who studied under yet another Mont Pelerin founder.
The Dictator’s Messiah
James M. Buchanan was more concerned with the political and social aspects of economic theory than with pesky numbers or statistics.
In 1956, he submitted a private proposal to the president of the University of Virginia for the creation of a department for Libertarian and conservative studies, misleadingly called the Thomas Jefferson Center for Political Economy and Social Philosophy. Buchanan was motivated to create his department by the watershed Supreme Court decision of Brown v.The Board of Education two years earlier, which put an end to racial segregation in the public school system.
The entrenched Southern White elites that ruled Virginia, led by one of the most powerful Senators in U.S. history, Harry F. Byrd, took the court’s decision as an affront and resisted desegregation with all the means at their disposal. Buchanan’s Center at UVA aimed to subvert what he and the Virginian ruling class perceived as federal incursion into states’ rights – a more palatable framing for their real problem: democracy.
The pull of history and strong resistance from Virginia’s White middle class doomed Buchanan’s project. The inevitable demise of the Byrd organization and the turnover of the university’s leadership eventually forced Buchanan to find refuge in a regular faculty position at UCLA, then a hub of radical right wing thought.
Buchanan’s ideas were popular enough in the tight knit circles he moved in, but they had yet to reach the broader audience he needed in order to generate the momentum required for them to actually affect policy. He began to acquire more widespread recognition after the publication of “Academia in Anarchy”, which put forward ‘solutions’ to expressions of social consciousness among the country’s student body. Along with his co-author, Nicos Devletoglou, he would propose remaking colleges and universities as “industries in which individuals sought to maximize their personal advantages and minimize their costs”. The idea was to eliminate dissent by turning higher education into a business and eliminating the humanities from the curriculum.
The book propelled Buchanan into the international spotlight and he would soon be heading back to Virginia to form a new department. Located in the less prestigious Virginia Polytechnic Institute, better known today as Virginia Tech, his Center for Public Choice was where he would first meet Charles Koch and become a regular recipient of the billionaire’s generosity.
Soon enough, Buchanan would have a chance to prove just how useful his anti-democratic vision of government could be to a select group of private interests and the Chilean Minister of Finance, Sergio de Castro, who hosted the American academic for a week of exclusive seminars in Augusto Pinochet’s military dictatorship. The main purpose of the five formal lectures he delivered during his 1980 visit was to explore how his “public choice” theory of economics could inform their new constitution.
Buchanan was credited – though not publicly – with providing the legislative tools the dictator needed to cement the governance structure he was running on behalf of the propertied classes. De Castro’s “modernizations” included such Buchanan staples as school vouchers, evisceration of the public university system, health care privatization and the creation of super majorities in the legislative chambers to make any future changes virtually impossible.
Six years later, James Buchanan would be awarded a Nobel Prize in economics and as his star rose, Charles Koch would single him out to lead his most important – and illegal – political operation on the banks of the Potomac. His name would serve to legitimize Koch’s project at George Mason University; very much the crown jewel of Koch’s by then well-established, multi-pronged political operation.
All About the Business
The engineering degree Charles Koch earned at MIT in 1957 served to sharpen a mind already predisposed to distillation. After his initial resistance, Fred Koch’s second-born settled in his role of heir-apparent and began to break down the parts of the corporation he would eventually rename after his father, selecting the best pieces and putting them back together for a more efficient performance.
He would tinker with it over and over again, reacting to changing markets, governmentally-imposed limitations and the ever-alluring siren call of more profits. Along the way, he would pick up the intellectual tidbits and political and economic theories that best suited his approach, cobbling together a personal business philosophy enshrined in what many a Koch employee would come to learn as Market-Based Management or MBM, for short.
An education in MBM, which some former employees described as a “cult”, was compulsory at the company and embracing its principles was a non-negotiable condition of employment. Ostensibly designed to attract and train free-market thinkers who thrived on the entrepreneurial spirit, Market-Based Management was a collection of tenets devised to produce clones of Charles Koch himself.
As Koch Industries expanded and devoured other gigantic corporations like Farmland and Georgia Pacific, it became harder to sell this glorified employee manual to the swelling number of people on its payroll. But, Koch’s ego and ambition grew along with the company assets. He began pouring more and more money into Libertarian causes and think tanks, as the need to keep the government at bay increased. He would invest in politicians and academics, like Buchanan, who could help him shape the public narrative and deflect negative attention from decidedly unfree market practices, such as the theft of resources from Native lands.
Measure Once, Take Twice
The rocky terrain in northeastern Oklahoma was thought to be of no particular value when the U.S. government relocated the Native American Osage tribe there from their original abode in what had become the state of Kansas. Only a decade earlier, George Bissell and Edwin L. Drake had successfully drilled for oil in Pennsylvania, kick-starting the age of fossil fuel extraction in the United States. The initially worthless land now part of the Osage Reservation soon revealed its rich deposits of crude. Oil leases were issued to the tribe, which oilmen all over the country would henceforth have to rent to gain access to the black gold.
The Osage would reap huge profits from the oil on their land, making them the wealthiest Native tribe in the country – indeed, the richest people per capita in the world. Decades later, Osage tribe members were driving around in expensive cars, wearing furs and exhibiting other signs of conspicuous consumption made possible by the ever-increasing dividends resulting from the oil gushing from the ground.
The story of the Osage takes a tragic but not so unexpected turn, as they began to be targeted in a criminal conspiracy to assassinate them and take over the fortune beneath their feet. The tribe would survive the ordeal with the help of nascent FBI and its fledgling director, J. Edgar Hoover who eventually cracked the multiple-murder case.
During the 1980’s, the Osage and the FBI would have to deal with a far more cunning and dangerous enemy in Koch Industries.
Koch President, Bill Hanna, sent out a company-wide memo instructing employees to “shred”, “burn” or otherwise destroy by “some equally effective method” any records that could benefit competitors. He did so in the midst of a U.S. Senate investigation into allegations of deliberate oil mismeasurement. The final report found Koch culpable of systematic oil theft.
For years, Koch had defrauded crude suppliers through manipulation of industry-standard oil gauging methods. They developed their own step-by-step procedure and drilled it into their oil gaugers with MBM-infused intensity with the understanding that their job depended almost exclusively on proper adherence to it. Gaugers were encouraged to always fudge the numbers they kept when siphoning crude from their suppliers’ tanks and loading it onto Koch’s barges. The practice was known as “cutting the top” and “bumping the bottom”, which simply meant that they took more than what they paid for.
This technique put millions of barrels of free oil into Koch’s refineries over the years. Among their victims were the Osage in Oklahoma, who they identified as the ideal target for a public relations campaign Koch mounted to undermine the Senate’s findings and stave off a criminal inquiry.
Understanding that the Osage had limited accounting expertise, Koch sent a former company trader, Ron Howell, to perform an ‘audit’ of the oil lease receipts against their own to prove that claims of oil theft were baseless. Howell came back with the incredible assertion that not only had Koch not stolen any oil, but in fact, had overpaid. In March, 1990, the Osage Nation News ran a story in which Osage chiefs cleared Koch of wrongdoing, based on the fraudulent audit results. Their statements were carried by the Daily Oklahoman soon after and Senator Bob Dole, beneficiary of almost a quarter of a million dollars from Koch throughout his career, submitted the article into the Senate record.
The criminal case never materialized. The FBI’s investigation was abruptly dropped by incoming U.S. Attorney, Timothy Leonard, a man with no relevant experience who was appointed by Oklahoma Senator and close Koch ally, Don Nickles.
Elbow Room
By 2016, Koch Industries would have grown into a fossil fuel behemoth with an annual revenue “larger than Facebook, Goldman Sachs and U.S. Steel combined”. Its insidious and calculated moves in local and state-level politics, academia and the law changed the political landscape of America. Their network would be instrumental in financing and amplifying the Tea Party zealotry. It would bring anti-union, anti-worker’s rights politicians like Scott Walker into the national spotlight. The radical right-wing rantings of Glenn Beck were written by the Koch-funded FreedomWorks, a tax-exempt group founded by former Republican House majority leader, Dick Armey. Beck would collect as much as $1 million dollars annually from the organization to spew his brand of free-market lunacy.
The Heritage Foundation, Cato Institute, The Reason Foundation, The Tax Foundation, The Club for Growth and Americans for Prosperity are just a partial list of the vast, multi-tiered operation initiated and maintained by the Kochs and their billionaire friends to shift the focus of political and economic discourse away from the majority and centering it around the interests of the 0.01 percent. The wealthy oligarch class coalesced around Charles Koch’s leadership to stage a coup on the rest of the country, couching their inhuman greed in populist rhetoric meant to seduce the masses of people they are intent on exploiting.
Along the way, Koch Industries’ shameful record of ecological destruction, subversion of democracy and death would soon be revealed as their true legacy.
