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FEATURES/Real Issue | Jan 14, 2013 | 11495 views

Inside the Koch Empire

They control one of the world’s great companies, which they’re using to reshape capitalism, and politics, in their image. Liberals (and competitors) may hope they go away, but Charles Koch and his brother David are just getting started
Inside the Koch Empire
Image: Jamie Kripke for Forbes
Koch Industries Chairman Charles Koch: “We buy something not to milk it but to build it.”

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man who, by Forbes’ careful measure, is one of the 50 most powerful people in the world, one of the 20 wealthiest—and one of the dozen most vilified—is perpetually in a position to reflect. But given it’s Charles Koch’s 77th birthday, the calendar demands it. Especially with the presidential election that Charles has called “the mother of all wars” less than a week away, and with Koch Industries, the firm he has built into the second-largest private company in America, considering several more big acquisitions, including an 18,000-employee automotive glassmaker, Guardian Industries.

Yet despite all these momentous events swirling around his wood-panelled Wichita office, decorated with seascapes and looking out on to the prairie to the north, the legacy he wishes to initially address comes via a piece of paper with a colour photograph of his first grandson. The baby’s name: Charles. “My proudest accomplishment,” he smiles.

Given that he and his brother have been called “pigs” (by MSNBC host Chris Matthews) and protesters have unfurled “Koch Kills” banners at rallies, Charles clearly wants to use this rare interview to humanise himself, attaching some personal substance to his courtly Midwest manner. Yet, this grandfatherly presence is at odds with the business and political juggernaut that he and younger brother David have built in a systematic process befitting their MIT training.

Charles’ many critics on the left—including the US President—accuse him of accumulating too much power and using it to promote his own economic interests through a network of secretive organisations they call the “Kochtopus”. Ironically, the Koch brothers believe they’re fighting against power, at least in the political realm. For the Kochs, the real power is Central government, which can tax industries into oblivion, force citizens to buy health insurance and bring corporations like Koch Industries to heel.

“Most power is power to coerce somebody,” says Charles. “We don’t have the power to coerce anybody.”

The November elections—which David, in an interview after the results were finalised, termed “bitterly disappointing”—seem to confirm Charles’ last point. Not even the Koch brothers, who spent millions of dollars during this election cycle (they won’t disclose the exact amount) funding direct political contributions and issue-driven ‘nonprofits’, could coerce voters to back their candidates. Mitt Romney’s loss was a huge blow to them, both in terms of likely policy outcomes and personal reputation.

But those who think the brothers will now fade away don’t understand the Kochs. Obama’s victory was just a blip on a master plan measured in decades, not election cycles. “We raised a lot of money and mobilised an awful lot of people, and we lost, plain and simple,” says David. “We’re going to study what worked, what didn’t, and improve our efforts. We’re not going to roll over and play dead.”

The goal has always been, Charles says, “true democracy”, where people “can run their own lives and choose what they want to buy, choose how to spend their money”. (“Now you elect somebody every two to four years and they tell you how to run your life,” he says.) Both Kochs innately understand that—unlike the populist appeal of their fellow Midwestern billionaire Warren Buffett and his tax-the-rich advocacy—their message of pure, raw capitalism is a much tougher sell, even among capitalists.

So their revolution has been an evolution, with roots going back half a century to Koch’s first contributions to libertarian causes and Republican candidates. In the mid-1970s, their business of changing minds got more formal when Charles co-founded what became the Cato Institute, the first major libertarian think tank. Based in Washington, it has 120 employees devoted to promoting property rights, educational choice and economic freedom. In 1978, the brothers helped found—and still fund—George Mason University’s Mercatus Center, the go-to academy for deregulation; they have funded the Federalist Society, which shapes conservative judicial thinking; the pro-market Heritage Foundation; a California-based centre sceptical of human-driven climate change; and many other institutions.

All of these organisations, unknown to 99 percent of the population, and their common source of support, unknown to most of the rest, have provided the grist for conservative thinking since Reagan. It’s a measure of Koch’s success that 40 years after Richard Nixon was stumping for national health insurance, Paul Ryan’s Ayn Rand-tinged economics are just a little right of centre. That the Supreme Court’s conservative majority led by Chief Justice John Roberts has issued a number of pro-property rights, anti-government decisions in recent years. That when George W Bush sought a watchdog on regulation costs, he appointed a top Mercatus executive. And none of this was accidental—it took millions of dollars over decades. You can see the same process at work in David’s quest to find a cure for cancer. A prostate cancer survivor like the rest of his brothers, he has given $215 million to fight the disease so far, including $100 million to fund his own research centre at MIT.

But to really understand the Koch brothers’ long game—and how the political goals they espouse play out in real life—it’s essential to examine the ultimate source of their power: Koch Industries.

This article appeared in the Forbes India magazine issue of 25 January, 2013
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