SEPTEMBER 4, 2010
By Yasha Levine
Mainstream America is finally getting to know the
billionaire brothers backing the libertarian movement,
thanks to a pair of dueling profiles inNew York and
The New Yorker. Now that we’ve heard about
their charitable giving, David’s 240-foot mega-yacht
and role as patrons of the Tea Party movement,
it’s time to ask a more serious question: How
libertarian are they?
The short answer…not very.
Charles and David Koch, the secretive billionaire
brothers who own Koch Industries, the
largest private oil company in America,
have spent millions bankrolling free-market
think tanks and pro-business politicians in order,
as David Koch has put it, “to minimize the role
of government, to maximize the role of private
economy and to maximize personal freedoms.”
But a closer look at their dealings reveals that
for the past 35 years the brothers have
never shied away from using government subsidies
to maximize their own profits, even while
endeavoring to limit government spending
on anything else. Simply put: the Kochs have
no problem with socialism — as long as they’re
in on the action.
In 1977, Charles Koch founded the Cato Institute,
an influential libertarian think tank, with the
aim of injecting free-market ideas into the
mainstream. The Kochs would go on to establish
and fund a vast network of overlapping think
tanks, institutes, foundations, media outlets,
and lobby groups that would vilify centralized
government and promote laissez-faire
capitalism as the only route to economic prosperity.
The Mercatus Center, Americans for Prosperity,
Reason Magazine, the Federalist Society and
the Heritage Foundation are just a few of the
right-wing organizations that run on Koch
cash today.
Koch Industries is America’s second-largest
private corporation, with revenue of
$100 billion in 2009, and 80,000 employees
in 60 countries. According to Charles Koch,
Koch Industries has grown 2,000-fold since
he took over from his dad in 1967,
transforming a middling oil transportation
and refinement operation into a corporate
mini-state involved in oil, petrochemicals,
paper, agriculture and financial services.
Worth just under $20 billion apiece, the brothers
live like emperors. David Koch, 70, resides in
a Park Avenue and likes to take a few weeks
off every year to lounge on his 246-foot
megayacht in the Mediterranean, which costs
$500,000 a week to operate and has been
rented out for pleasure cruises by Prince Charles.
Seventy-four-year-old Charles G. Koch,
who runs the company from a compound
in Wichita, Kansas, has attributed the
company’s success to an unshakable belief
in the power of the free-markets—a belief that
he says can be traced back to an “intellectual
epiphany” he experienced at a conference
more than 40 years ago. There, Koch realized
that free-market economics were an objective
reality “as immutable as the laws that work
in science,” he explained in 2006.
In its recent profile, the New Yorker called
Charles and David Koch “the primary
underwriters of hard-line libertarian politics
in America.” But the magazine failed to
mention that their free market philanthropy
belies the immense profit they have made
from corporate welfare.
1. SOCIALIST SHIPBUILDING
Two years before founding the influential Cato
Institute, Charles Koch bought a supertanker
from a communist regime. According to
information in the Lehman Brothers business
archives, as well as records found in a Croatian
shipyard, in 1975, Koch Industries purchased
ship from the Socialist Republic of Yugoslavia.
The ship, a standard 274,330-ton dual use tanker,
was named after the Kochs’ mother, Mary.
The purchase of a ship from Yugoslavia would
not have been a big deal, had the Kochs not
been the ones doing the buying. With the
whole free world to choose from, why would
a supposedly true-believer libertarian like
Charles Koch buy a vessel produced in a
communist country—and name it after his own
dear mother, to boot? After all, didn’t Austrian
school economist Ludwig Von Mises, an
early influence on Charles’ intellectual journey
to libertarianism, write in his 1933 seminal
work, Socialism: An Economic and
Sociological Analysis, that centrally planned
economies are so inherently inefficient that
“socialism must fail”?
It turned out that Yugoslavia’s
highly-centralized economy was the
opposite of inefficient—it was on fire.
In the 1960s and 1970s, the country
was churning out, among other things,
low-cost, high-quality ships that were sold
around the world. Even the old-school
libertarian magazine The Freeman couldn’t
help but praise the country’s economic
performance, writing in 1988, “Many of
Yugoslavia’s industries seemed highly
competitive in world markets, and there
were even astonishing reports that efficient
Yugoslav shipbuilders wrested contracts
away from the Japanese.”
Institute, Charles Koch bought a supertanker
from a communist regime. According to
information in the Lehman Brothers business
archives, as well as records found in a Croatian
shipyard, in 1975, Koch Industries purchased
ship from the Socialist Republic of Yugoslavia.
The ship, a standard 274,330-ton dual use tanker,
was named after the Kochs’ mother, Mary.
The purchase of a ship from Yugoslavia would
not have been a big deal, had the Kochs not
been the ones doing the buying. With the
whole free world to choose from, why would
a supposedly true-believer libertarian like
Charles Koch buy a vessel produced in a
communist country—and name it after his own
dear mother, to boot? After all, didn’t Austrian
school economist Ludwig Von Mises, an
early influence on Charles’ intellectual journey
to libertarianism, write in his 1933 seminal
work, Socialism: An Economic and
Sociological Analysis, that centrally planned
economies are so inherently inefficient that
“socialism must fail”?
It turned out that Yugoslavia’s
highly-centralized economy was the
opposite of inefficient—it was on fire.
In the 1960s and 1970s, the country
was churning out, among other things,
low-cost, high-quality ships that were sold
around the world. Even the old-school
libertarian magazine The Freeman couldn’t
help but praise the country’s economic
performance, writing in 1988, “Many of
Yugoslavia’s industries seemed highly
competitive in world markets, and there
were even astonishing reports that efficient
Yugoslav shipbuilders wrested contracts
away from the Japanese.”
2. VENEZUELAN FERTILIZER
In 1998, Koch Industries entered into a lucrativepartnership with two state-owned companies–one
Venezuelan, the other Italian–to open a massive
$1 billion nitrogen-based fertilizer plant in
Venezuela called Fertinitro.
A business venture with two state-run
companies? How did Koch Industries find
itself in this libertarian nightmare scenario?
After all, Charles Koch’s own Cato Institute brain
trust has been writing for decades that
state-owned enterprises are less efficient
and productive than private companies.
Fertilizer production requires massive amounts
of natural gas, and obtaining it can account for
50 percent of operating costs. Luckily for Koch,
Fertinitro’s semi-state-owned status allowed it
to tap into a guaranteed supply of natural gas
subsidized by the state. Steven Bodzin, a
former Bloomberg journalist, found that
“just on the natural gas, never mind the
electricity or water subsidies, Koch profits
from a direct Venezuelan government subsidy
of $1.23 for every thousand cubic feet of gas
consumed at Fertinitro.” For Koch Industries,
whose role in the partnership is to unload
half of the 6 million tons of fertilizer produced
by Fertinitro every year on the American market,
that equals up to $123.6 million in subsidies every year.
Savor the irony: While tea partiers wave
Koch-funded placards comparing President
Obama to Hugo Chavez, the Kochs are
busy profiting off Chavez’s socialist economy
—only to turn around and blame Venezuela’s
poverty on Hugo Chavez’s socialist policies.
3. RANCHING
For the past fifty years, through its Matador
Cattle Company subsidiary, Koch Industries
has been quietly milking a New Deal program
that allows ranchers to use federal land basically
for free. Matador, one of the ten biggest
domestic cattle ranching operations, has
something in the neighborhood of 300,000
acres of grazing land for its cows—two-thirds of
which belong to American taxpayers,
who will never see a penny of profit.
Cattle Company subsidiary, Koch Industries
has been quietly milking a New Deal program
that allows ranchers to use federal land basically
for free. Matador, one of the ten biggest
domestic cattle ranching operations, has
something in the neighborhood of 300,000
acres of grazing land for its cows—two-thirds of
which belong to American taxpayers,
who will never see a penny of profit.
4. LOGGING
In 2006, Koch Industries acquired pulp and paper
giant Georgia-Pacific for a $21-billion cash
payment, allowing the Koch brothers to tap
into a whole new area of government largesse:
the ability to log public forests for private gain
and have taxpayers cover the operating costs.
Not only can companies like Georgia-Pacific,
which is the world’s leading manufacturer of
paper products, exploit a publicly-shared
resource without sharing the profits, but
the U.S. Forestry Service subsidizes them to do
it by forcing taxpayers to fund the construction of
new logging roads that provide loggers with
access to virgin growth—a nice welfare
arrangement for the industry that costs
taxpayers over $1 billion a year.
“Private logging of America’s National Forests
is a heavily subsidized form of corporate
welfare,” wrote Scott Silver, founder and
executive director of Wild Wilderness, a
conservation watchdog, at the time of the
Georgia-Pacific’s sale to Koch Industries.
“Logging companies such as Georgia-Pacific
strip lands bare, destroy vast acreages and
pay only a small fee to the federal government
in proportion to what they take from the public.”
giant Georgia-Pacific for a $21-billion cash
payment, allowing the Koch brothers to tap
into a whole new area of government largesse:
the ability to log public forests for private gain
and have taxpayers cover the operating costs.
Not only can companies like Georgia-Pacific,
which is the world’s leading manufacturer of
paper products, exploit a publicly-shared
resource without sharing the profits, but
the U.S. Forestry Service subsidizes them to do
it by forcing taxpayers to fund the construction of
new logging roads that provide loggers with
access to virgin growth—a nice welfare
arrangement for the industry that costs
taxpayers over $1 billion a year.
“Private logging of America’s National Forests
is a heavily subsidized form of corporate
welfare,” wrote Scott Silver, founder and
executive director of Wild Wilderness, a
conservation watchdog, at the time of the
Georgia-Pacific’s sale to Koch Industries.
“Logging companies such as Georgia-Pacific
strip lands bare, destroy vast acreages and
pay only a small fee to the federal government
in proportion to what they take from the public.”
5. ETHANOL
Just two weeks ago, Koch Industries got into
the ethanol business by buying two ethanol
plants in Iowa. Other than defense, ethanol
is possibly the most subsidized industry in
America. Koch’s own Cato Institute has called
ethanol a “boondoggle,” writing that “the dizzying
array of federal, state and local subsidies, preferences
and mandates for ethanol fuel are a sad reflection
of how a mix of cynical politics and we-can-do-anything
American naiveté can cloud minds and distort
markets.” The institute has sharply criticized
the billions of dollars in federal and state
subsidies that are poured into the ethanol
industry (between $5 billion and $6.8 billion
in 2006 alone).
Koch Industries has traded ethanol for years
on the commodities market, but their entry into
the production side of the business puts them in a
position to profit off the subsidies in a more
direct manner.
the ethanol business by buying two ethanol
plants in Iowa. Other than defense, ethanol
is possibly the most subsidized industry in
America. Koch’s own Cato Institute has called
ethanol a “boondoggle,” writing that “the dizzying
array of federal, state and local subsidies, preferences
and mandates for ethanol fuel are a sad reflection
of how a mix of cynical politics and we-can-do-anything
American naiveté can cloud minds and distort
markets.” The institute has sharply criticized
the billions of dollars in federal and state
subsidies that are poured into the ethanol
industry (between $5 billion and $6.8 billion
in 2006 alone).
Koch Industries has traded ethanol for years
on the commodities market, but their entry into
the production side of the business puts them in a
position to profit off the subsidies in a more
direct manner.
6. EMINENT DOMAIN
Although highly diversified, Koch Industries’
vast network of oil and gas pipelines
remains the company’s core business and
main source of revenue.
The exact size of their
pipeline network is not known, but some
estimate that Koch Industries operates
anywhere between 35,000 and 50,000 miles
of pipelines between Texas and Canada—
enough plumbing to wrap around the globe
twice or zigzag between New York and Los Angeles
15 times. How did the Kochs manage to build up
a pipeline network of this magnitude? By getting
the government to use its tyrannical powers of
eminent domain to forcibly seize private
property on Koch Industries’ behalf.
As far as libertarians are concerned, eminent
domain is a socialist tyranny straight out of
the Leninist playbook, as it recognizes the
government as the real owner of all land and
vests it with the power to expropriate private
property for alleged public good. At the
most fundamental level, libertarians believe
that eminent domain invalidates the notion
of private property rights, threatening not just
prosperity, but freedom. Charles Koch is clear
on this. “Countries that clearly define and
protect individual private property rights stimulate
investment and grow,” he writes in his
book The Science of Success. “Those that
threaten and confiscate private property lose
capital and decline.”
But not all property rights are created equal.
A Koch Industries oil pipeline recently built
in Minnesota shows that Charles Koch does
not see an is anything wrong with the
government confiscating private property,
as long as he stands to make a profit.
Completed in 2008, the 304-mile line now
carries crude oil from the Canadian border to
a Koch Industries refinery near the Twin Cities
area via a two-foot-wide pipe. Company PR
execs pitched the pipeline as a public benefit
project, as it would increase Minnesota’s
gasoline supply. But the 1,000-plus landowners
who were forced to handover their private property
so that Koch Industries could run its pipeline
didn’t quite see it that way. “People’s rights were
violated, and they never got their due process,”
a farmer whose fields were going to be cut in
two by the pipeline told a newspaper in 2007.
“It’s wrong. People’s property is one of the
most important things to their livelihood.”
Yasha Levine is an editor of The eXiled.
Levine and co-author Mark Ames first broke
the connection between the Tea Party and the
billionaire Koch brothers in Playboy.com in
February 2009, sparking lawsuit threats, and
causing CNBC’s Rick Santelli to publicly distance
himself from the Tea Party movement and
cancel his Daily Show appearance.
Read other takedowns of the Koch brothers
by Levine and Ames…
vast network of oil and gas pipelines
remains the company’s core business and
main source of revenue.
The exact size of their
pipeline network is not known, but some
estimate that Koch Industries operates
anywhere between 35,000 and 50,000 miles
of pipelines between Texas and Canada—
enough plumbing to wrap around the globe
twice or zigzag between New York and Los Angeles
15 times. How did the Kochs manage to build up
a pipeline network of this magnitude? By getting
the government to use its tyrannical powers of
eminent domain to forcibly seize private
property on Koch Industries’ behalf.
As far as libertarians are concerned, eminent
domain is a socialist tyranny straight out of
the Leninist playbook, as it recognizes the
government as the real owner of all land and
vests it with the power to expropriate private
property for alleged public good. At the
most fundamental level, libertarians believe
that eminent domain invalidates the notion
of private property rights, threatening not just
prosperity, but freedom. Charles Koch is clear
on this. “Countries that clearly define and
protect individual private property rights stimulate
investment and grow,” he writes in his
book The Science of Success. “Those that
threaten and confiscate private property lose
capital and decline.”
But not all property rights are created equal.
A Koch Industries oil pipeline recently built
in Minnesota shows that Charles Koch does
not see an is anything wrong with the
government confiscating private property,
as long as he stands to make a profit.
Completed in 2008, the 304-mile line now
carries crude oil from the Canadian border to
a Koch Industries refinery near the Twin Cities
area via a two-foot-wide pipe. Company PR
execs pitched the pipeline as a public benefit
project, as it would increase Minnesota’s
gasoline supply. But the 1,000-plus landowners
who were forced to handover their private property
so that Koch Industries could run its pipeline
didn’t quite see it that way. “People’s rights were
violated, and they never got their due process,”
a farmer whose fields were going to be cut in
two by the pipeline told a newspaper in 2007.
“It’s wrong. People’s property is one of the
most important things to their livelihood.”
7. STALIN
Before Fredrick Koch suddenly developed a
pinko paranoia and helped start up the John Birch
Society, he was making piles of cash laying the
foundation of Soviet oil infrastructure in the
1920s and early 1930s. He designed and built
refineries, hosted Soviet engineers for training
in Wichita, Kansas, and made an invaluable
contribution to the rapid industrialization of the
Soviet Union during Joseph Stalin’s first Five-Year
Plan. This is a touchy issue for the Koch family:
without the Commie Reds providing his
future seed capital, Koch Industries would not
exist today—and neither would the Tea Parties.
When I wrote about the Koch family’s wealth and
its connection to the Soviet Union in April 2010,
libertarians rushed to the Kochs’ defense, arguing
that business decisions made when they were
children had no bearing on Charles and David Koch.
They are not their father, and cannot be blamed
for his sins―which is true. The brothers are
better at the libertarian lie than their father
ever was: their self-help libertarianism is more
effective pro-billionaire propaganda than his racist
Bircher rants. But while the tone may be
different, the objective is very much the same:
to con the American people into voting against
their own interests.
(who’s a welfare queen in her own right) screaming
at the top of her lungs that socialized healthcare
is “reaching down the throat and ripping the guts out of
freedom” or watch a Cato Institute shill on Meet the
Press layout a case for why you should support the
privatization of social security, remember: they
aren’t hypocrites, they’re cons looking to rip you off.
pinko paranoia and helped start up the John Birch
Society, he was making piles of cash laying the
foundation of Soviet oil infrastructure in the
1920s and early 1930s. He designed and built
refineries, hosted Soviet engineers for training
in Wichita, Kansas, and made an invaluable
contribution to the rapid industrialization of the
Soviet Union during Joseph Stalin’s first Five-Year
Plan. This is a touchy issue for the Koch family:
without the Commie Reds providing his
future seed capital, Koch Industries would not
exist today—and neither would the Tea Parties.
When I wrote about the Koch family’s wealth and
its connection to the Soviet Union in April 2010,
libertarians rushed to the Kochs’ defense, arguing
that business decisions made when they were
children had no bearing on Charles and David Koch.
They are not their father, and cannot be blamed
for his sins―which is true. The brothers are
better at the libertarian lie than their father
ever was: their self-help libertarianism is more
effective pro-billionaire propaganda than his racist
Bircher rants. But while the tone may be
different, the objective is very much the same:
to con the American people into voting against
their own interests.
8. TAKEAWAY MESSAGE
The next time you hear Michele Bachmann(who’s a welfare queen in her own right) screaming
at the top of her lungs that socialized healthcare
is “reaching down the throat and ripping the guts out of
freedom” or watch a Cato Institute shill on Meet the
Press layout a case for why you should support the
privatization of social security, remember: they
aren’t hypocrites, they’re cons looking to rip you off.
Yasha Levine is an editor of The eXiled.
Levine and co-author Mark Ames first broke
the connection between the Tea Party and the
billionaire Koch brothers in Playboy.com in
February 2009, sparking lawsuit threats, and
causing CNBC’s Rick Santelli to publicly distance
himself from the Tea Party movement and
cancel his Daily Show appearance.
Read other takedowns of the Koch brothers
by Levine and Ames…
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