Meeting the Left’s Corporate Boogeyman
Koch Industries may no longer be America’s most secretive company after Leonard’s investigative masterpiece. Sadly, the book does more to substantiate existing stigmas than to explore the evolving nature of Koch’s influence operation.
Kochland: The Secret History of Koch Industries and Corporate Power in America. By Christopher Leonard. Simon & Schuster; 687 pages; $35.00.
In media parlance, the eponym Koch has come to signify a firm’s channeling of megaprofits into right-wing causes, from looser climate regulation to repeal of Obamacare and everything in between. Whether the groups in the so-called “Koch network” are just corporate fronts or legitimately channel the beliefs of public-minded leaders is less of a settled question. Either way, Koch has deservedly earned the left’s fiercest scorn for its steadfast defense of free markets, and it’s equally fair game that it remains one of the most closely scrutinized American corporations in history.
And yet few even on the right would deny the secrecy of Koch Industries, Inc. Among its consumers — you, me, everyone — few can name the sectors spanned by the conglomerate despite annual revenues larger than those of Facebook, Goldman Sachs and US Steel combined.
Christopher Leonard’s Kochland is a colossal masterpiece of investigative journalism seven years in the making, where Koch’s breakneck growth from the late 1980’s to this day is reported on down to the last detail. As they enter the world of their corporate nemesis, Leonard’s liberal readers will be tantalized by the tale of just how Koch turns its corporate riches into political wins. Kochland is subtitled “The Secret History of Koch Industries”, but the company’s story may be secret no longer.
Koch is special in many ways, but perhaps most salient of all is the sheer size and scope of its operation. In his writing and speaking, Leonard is quick to note how the company’s massive and diversified portfolio of businesses make many of the products we rarely notice using yet are essential to our everyday lives, from our clothing’s synthetic fibers to the raw materials used for plastic or building materials, and everything in between.
This pervasive reach is what inspired Leonard to portray Koch as a an exemplar of America’s changing political economy. He claims the company has grown simply too big to fully guard itself from the economic winds that have rocked the nation over the last half century. Every major policy shift and market shock, his thinking goes, has necessarily affected Koch Industries in one way or another. Leonard thereby styles his history of Koch as a broader history of American capitalism.
Take the unions, for instance. Circa 2006, Koch rolled out its Labor Management System (LMS), an HR tool that Leonard depicts in devilish terms. Employees at the Koch-owned Georgia-Pacific’s paper mills were made to swipe into a software that tracked their every step across the plant, measuring their time spent getting from point A to point B against Koch’s benchmarks — including bathroom breaks. Every week, the plant managers pinned up a table to the wall ranking every worker’s pace of movement, and warned the slowest to work up the ranks or else get fired.
The LMS strained the plant’s staff to the limit, squeezing the little time they spent bonding and cracking jokes. This, along with subpar health insurance and a stagnant pension plan, pushed the Inlandboatmen’s Union (IBU) chapter at a Georgia-Pacific warehouse in Portland to stand up to management and demand better terms. At every round of negotiation, however, the IBU’s leaders came to the table weakened by dismal membership numbers and a widespread fear that workers could be replaced by non-unionized contractors. Koch’s representatives not only held firm, but dug in to extract further efficiencies from IBU’s labor contract. Leonard calls this hardball strategy of undercutting unions the “Koch way”, and casts the IBU’s downfall as a larger story about the demise of the American union.
Or take Koch’s wild acquisition spree of the 1990’s. The lax antitrust enforcement of the Reagan years brought about what Leonard calls an “era of bigness” in American capitalism, with companies and investors plunging headlong into the burgeoning market for mergers and acquisitions. Koch was no stranger to this frenzy; the company set up an internal review board for all acquisition pitches coming in from senior managers thirsty to buy out competing businesses — an in-house private equity boutique of sorts named the Corporate Development Group. The CDG became a springboard into Koch’s frenetic growth of the 90’s.
But oftentimes, this heightened focus on expansion put the quick approval of deals above due diligence — a mentality exemplified by the fiasco around the acquisition of Purina Mills. Originally an agricultural company at its core buying grain and turning it into feedstock it sold to farmers nationwide, Purina Mills had begun an era of growth of its own shortly before being acquired by Koch in 1998 for $100 million, and saw a golden opportunity to keep growing in the adjacent hog market.
The company sought to boost its grain sales by buying pigs and selling them to client farmers bundled with the feedstock to feed them — a practice called tying in economics. But a reversal of fortune — improbably caused by Koch’s allies on Capitol Hill — would soon kill Purina’s growth hopes. Newt Gingrich and his Republican Revolution had overtaken the House of Representatives in 1994 and soon set out on a radical reform plan that included dismantling the last remnants of New Deal farm programs.
The unraveling of the farm subsidies sent shockwaves through agricultural markets. Overnight, hog prices plummeted. Purina Mills was left with its hands full of a near worthless stock of them and facing huge losses. The company had remained a separate entity within the Koch conglomerate, but its downfall soon reverberated across other business units when its clients’ lawyers succeeded in “piercing the corporate veil” — legalese for making Purina’s debts payable by its holding company, Koch Industries.
As Charles Koch set out to conquer this motley range of sectors including nitrogen fertilizer and newer refined oil products, he’d been careful to anchor his company’s growth strategy in a management philosophy of his own. Market-Based Management (MBM) sought to make all the theoretical features of free markets Charles Koch so idealizes an applicable reality across the company’s workplaces.
One of MBM’s core tenets emphasizes that learning from mistakes is a key to grow — and this is exactly what Koch did after the Purina Mills fiasco. The company stayed on its growth trajectory, with a twist. It went about acquisitions with special care to keep companies’ debtloads wholly separate, and enforced a stringent policy of “10.000% compliance” to avoid the kind of violations of environmental laws that had mired it in legal trouble through the previous decade. In 1996, Koch had been slapped a combined state and federal fine of $18.4 million for dumping ammonia-laden water into wetlands nearby its Pine Bend refinery in suburban Twin Cities, Minnessota.
In the 2000’s, the deregulation of energy and finance turned vastly profitable for Koch.
The hyper-financialisation that ensued propelled its trading division — Koch Supply & Trading — to competition with all of Wall Street’s major investment banks, and to claim the top spot in the trading of energy futures and derivatives, specifically. Energy futures are contracts sold at a spot price for the future delivery of energy, thus hedging the buyer against possible price hikes. Derivatives are a more complex instrument yielding returns tied to the value of those same energy contracts.
But even handier than any policy change, Koch’s traders triumphed in these confines of finance owing to their unrivaled knowledge of the underlying physical market. One of the storylines in Kochland is how the company turns market knowledge into an invaluable edge — in Koch Supply & Trading’s case, this knowledge proved indispensable.
With decades of experience drilling, refining and barging crude, Koch had gotten itself into a privileged spot by the time the trading era began. Coupled with its first-hand, insider knowledge of oil and natural gas supplies — a large share of which was put into circulation by Koch itself — the company began amassing masses of weather and market data to get as close as possible to a bird’s eye view of America’s energy markets.
It even began measuring snowfall in California to estimate how much snowmelt would later pour into hydroelectric dams, ultimately feeding into California’s power grid. Koch had become an energy firm and a knowledge firm in equal measure.
But Koch’s story and that of the wider economy form perhaps the most telling parallel during what Leonard calls the era of “neoliberalism”. The unraveling of the New Deal consensus through the oil shocks of the 1970’s, he argues, didn’t give way to Charles Koch’s dreamt-up ideal of radical laissez-faire.
Instead, the inability to reform costly entitlement programs and to match tax cuts with spending cuts through successive Republican administrations resulted in what their self-proclaimed fiscal conservatism was premised on preventing: swelling deficits and debt. Free-marketeers came out of this era having to show for it not a slimmed-down government, Leonard argues, but a series of debt-financed tax cuts and a select few deregulated sectors that favored politically-influent companies such as Koch.
In most media accounts, Koch’s influence machine dovetails with the Tea Party wave of 2010, but Leonard is careful to trace it all the way back to the mid-1970’s. The Koch network’s strategy of influencing the so-called “four pillars of society” finds its forebear in a speech Charles Koch delivered in 1974 to the Institute of Humane Studies (IHS), a think-tank he cofounded that remains a core pillar of his educational strategy.
Koch pressed his audience to defend the role of markets against creeping government across educational institutions, the media, through litigation and political influence. Education and government remain two of the four pillars, but the middle two have since been replaced by business and communities.
From these early days of Koch’s influence operation, Leonard questions the legitimacy — when not the legality — of the means it employs. The book begins with the tale of the years-long investigation into Koch’s alleged oil theft practices in land held by Native American tribes. Leonard extensively documents how Koch’s internal calls for continued improvement and ever greater efficiency led the company’s oil gaugers to always underreport the crude extracted from contracted oil wells in tribal land, a practice known as “cutting the top”.
This truth would eventually catch up with Koch years later, but the company got away when the probe was ended in federal court for lack of sufficient evidence. With extensive reporting of Koch’s string-pulling through allies in the Senate such as Don Nickles of Oklahoma and Bob Dole of Kansas who appointed the Koch-friendly judge who wrapped up the investigation, Leonard hints at the genesis of an influence machine that would stop at nothing to wield influence.
The larger story from the Oklahoma oil theft case, however, is what the company learnt about the need for allies in politics and a robust influence operation. As the case worked its way through the courts, Koch wasted no time in investing to shape the narrative around the oil theft allegations, notably through a group called Oklahomans for Judicial Excellence that rewarded market-friendly judges with high ratings. A similar template was later applied at George Mason University (GMU), a hub of Koch-friendly academics. GMU’s Law & Economics center flies judges to all-inclusive seminars in scenic hotels to teach them free-market economics.
The 1990’s were the era of Koch’s political build-up, when the groundwork was laid for what would later become the vast influence machine widely known as the Koch network. But what is less familiar even to rabid anti-Koch liberals is how diverse the apparatus has been from its onset, spanning every channel of influence in policymaking, from think-tanks and academic centers to pressure groups and grassroots muscle. Just like on the corporate side, size and scope are again the defining features tied to the Koch brand.
Leonard’s thorough reporting fails not to account for this diversity, but the terminology he uses often does. “Lobbying” is used as a catch-all to describe vastly different means that Koch employs to get its voice heard in the fabric of public policy. But the oversight of moneyed influence that currently exists — and that Leonard’s work implicitly calls for being tightened — would be unthinkable without the clearest, most unequivocal definition.
The 1995 Lobbying Disclosure Act — the latest time a definition of the practice was enshrined in the law — leaves no room for ambiguity. Only interacting with legislators or executive branch employees on a client’s behalf about legislation, rules, federal programs or personnel nominations is defined as lobbying.
Funding a friendly think-tank is not lobbying. Educating the public around policy issues, even from a biased viewpoint, is not lobbying. Campaign donations are not lobbying.
Leonard is right to cite Koch Industries Public Sector (KCPS) — set up in 2008 to encompass Koch’s previously dispersed presence in DC — as Washington’s largest registered lobbying shop. But on the scale of Koch’s larger influence operation, KCPS is a relatively small investment, and one that’s grown even smaller as all the examples above have gained weight within the Koch network.
In fact, this unique variety of means has turned the so-called “Kochtopus” into something of an odd animal in American public life, with elements of a pressure group, an ideas factory, an educational institution, a talent incubator and an accelerator of social enterprises. Koch in itself may be a new breed, but the various pieces it has brought together each have a long precedent, despite its critics’ best efforts to paint every dollar Koch spends as an affront to democracy, science, transparency and any other highly-held ideal that liberals fancy blaming Koch for irreparably undermining.
Take the world of think-tanks, long a distinct feature of America’s intellectual and policy landscape, as much the corollary of a sprawling policymaking apparatus open to external input as of the availability of corporate and individual money to spend on influencing it. Developing and supporting actionable ideas presents a ripe opportunity to shape policy outcomes, so it’s only natural that think-tanks feature prominently among the Koch network’s investments.
In this field, Koch competes with many other corporate and nonprofit interests, but Leonard seems to reserve it special censure when reporting on how the American Council for Capital Formation, a Koch group since defunct, funded a report on the costs of the Waxman-Markey cap-and-trade bill that eventually stalled in the Senate in 2010 despite the Obama administration’s best efforts to push for legislation to regulate carbon emissions.
Here’s the larger story: funding studies that provide ammunition for a cause is standard, lawful practice. This applies to companies and non-profits alike, and holds true regardless of the degree of presumed independence of the study’s author. For examples of this widespread practice, look no further than New America, Leonard’s past affiliation and presumably the sponsor of Kochland along with his previous book on America’s unsavory meat business (The Meat Racket: The Secret Takeover of America’s Food Business).
New America claims “exceptional standards of independence and funding transparency”, and its disclosure of funding sources is indeed astoundingly thorough. Its website notes prominently that funders are committed to the think-tank’s mission and not the other way around. But here’s the point: none of New America’s corporate funders would keep the dollars flowing if the group’s activities and publications didn’t somehow line up with their goals, be they corporate or not. Again, this is true of any think-tank.
New America’s self-proclaimed independence takes nothing away from this basic fact, and is in fact the same story that countless other think-tanks tell the world about themselves. These vacuous claims tell us nothing about how much of their funding may be tied to the furthering of an agenda that originates outside them.
The subordination of a think-tank’s activities to a corporate agenda is much harder to prove than Leonard allows. It oftentimes takes a scandal to reveal such a thing, and think-tanks that aren’t mindful to keep up a veneer of independence are unlikely to get the funding in the first place.
If you’re looking for one such scandal, however, guess who has a fresh one on the books.
In 2017, New America bucked under Google’s pressure to disband an entire research division dedicated to antitrust policy. One of New America’s key founders to the tune of $21 million, Google had been bothered by the work of journalist Barry Lynn on the upsides of breaking up the tech giant, and by a mere blogpost praising the EU’s ruling to slap it with a $2.7 billion fine by the rising anti-monopoly crusader Lina Khan. Barry Lynn was fired on the spot, the Open Markets group spun off into the independent Citizens Against Monopoly, and Khan no longer works at New America. So much for “exceptional standards of independence”.
Rather than focusing on the Koch apparatus of political influence, Kochland is primarily about the lesser-known fabric of megaprofits that bankrolls it. Yet Leonard is right to make ample room in the book for what he considers is the gravest threat to the Koch’s blueprint for a prosperous society based on market forces and minimal government meddling.
Donald Trump’s refashioning of the GOP around America First, he argues, looms larger over the Koch agenda than even the liberal ascendancy that propelled Barack Obama to the White House in 2008. His economic nationalism, the trade war, the tariffs are all indeed a stiff setback for the Kochs' long-haul effort to pull Republicans closer to libertarian principles. The future of American politics may still largely hinge on this underlying fight for the steering wheel of the GOP.
Sadly, Leonard fails to grasp the full complexity of the Trump-Koch tussle. His book is limited to detailing the existing narrative that portrays Koch as a network fighting for a narrow set of causes that closely overlap the interests of the company's bottom line: looser climate regulation, weaker unions, lower taxes and the like.
Never mind that the bulk of Koch’s new investments since the 2016 election bear no relation the fossil fuel industry’s bread-and-butter whatsoever: criminal justice reform — and a parallel “second chances” HR policy at Koch Industries to hire record numbers of former inmates — , security for DACA recipients and wider immigration reform, a restrained foreign policy, support for Democrats in line with smart deregulation efforts, staunch opposition to corporate welfare, and generous support for a constellation of social enterprises committed to lifting people out of poverty.
Koch and Trump may be antagonists — but as Leonard’s otherwise masterfully reported book shows, they share one thing in common. The left’s scorn against them isn’t always rational.
