The Kochotopus: Free Market Machine

The following is an excellent excerpt from the book “DARK MONEY: The Hidden History of the Billionaires Behind the Rise of the Radical Right” by Jane Mayer from Part One: “Weaponizing Philanthropy: The War of Ideas, 1970-2008” from Chapter 5 “The Kochtopus: Free-Market Machine” on page 141 and I quote: “After suffering humiliating losses in the courts and Congress, the Kochs began to retool their approach not just to business but also to politics. They began to engage far more strategically, funneling money into the pursuit of power in a whole new way. More than anyone else, the man behind the Kochs’ political transformation was Richard Fink, nicknamed the Pirate by detractors within their sphere for the handsome living he made on their payroll.
Fink was famous for flying to Wichita in the late 1970s as a twenty-seven-year-old graduate student, wearing a garish blue tie, a checkered shirt, and a brand-new white-piped black polyester suit, to beg for money from Charles. “What a jackass I looked like,” he later admitted. After growing up in Maplewood, New Jersey, in a family that he joked made The Sopranos look like a home movie, Fink had become a devotee of Austrian free-market theory. He hoped Charles would fund a program in it at Rutgers in New Jersey, where he was teaching part-time while pursuing a graduate degree at NYU. Courses in Austrian economics were as rare as Viennese waltzes in most colleges at that time. But soon after Fink made the pitch, Charles pledged $150,000 for the program. When Fink later asked Charles why he’d thrown so much money at a long-haired, bearded graduate student in a shiny disco suit, Charles had supposedly quipped, “I like polyester. It’s petroleum based.”
By the late 1980s, Fink had supplanted Cato’s Ed Crane as Charles Koch’s main political lieutenant. Unlike Crane, who was interested in libertarian ideas but regarded it as “creepy when you have to deal with politicians,” Fink was fascinated by the nuts and bolts of power. After studying the Kochs’ political problems for six months, he drew up a practical blueprint, ostensibly inspired by [Friedrich] Hayek’s model of production, that impressed Charles by going beyond where his own 1976 paper on the subject had left off. Called “The Structure of Social Change,” it approached the manufacture of political change like any other product. As Fink later described it in a talk, it laid out a three-phase takeover of American politics. The first phase required an “investment” in intellectuals whose ideas would serve as the “raw products.” The second required an investment in think tanks that would turn the ideas into marketable policies. And the third phase required the subsidization of “citizens” groups that would, along with “special interests,” pressure elected officials to implement the policies. It was in essence a libertarian production line, waiting only to be bought, assembled, and switched on.
Fink’s plan was tailor-made for Charles Koch, who deeply admired Hayek and approached both business and politics with the systematic mind-set of an engineer. While some might find it disturbing to regard the democratic process as a factory, Charles soon adopted the approach as his own. As he told Brian Doherty, the libertarian writer, “To bring about social change requires a strategy that is vertically and horizontally integrated.” It must span, he said, from “idea creation to policy development to education to grassroots organizations to lobbying to political action.” Before long, libertarian wags had dubbed the Kochs’ publicity-shy, multiarmed assembly line the Kochtopus, a name that stuck.
In contrast to their idealistic but amateurish approach during the old Libertarian Party days, with Fink’s help the Koch’s methods became decidedly more pragmatic. Facing serious threats to their business, they began playing the Washington political game as aggressively as any other corporation, if not more so. After the public relations fiasco of the Senate hearings into Indian oil theft, for instance, Koch Industries crossed ideological lines to hire Robert Strauss, the former chairman of the Democratic National Committee, who was by then Washington’s premier lobbyist. The company soon opened an office in the capital, which grew into a formidable in-house lobbying operation. Fink explained that it had been necessary for the company to establish a presence in Washington because it had felt “so brutalized by the process” and lacked “corporate defense” capabilities.
The Kochs had previously disdained conventional politics, but now they became major Republican donors. “It was the investigation that got them to the Republican Party,” notes Kenneth Ballen, the former counsel to the Senate’s investigative committee. Before that, he points out, Charles had been so far right he was off in the ether. They thought Reagan was a sellout. But they were worried about their business. It was about power.” Doherty saw the Kochs’ embrace of the Republican Party in much the same way. He credits the Kochs with being by far the largest funders of libertarian ideas but notes they also became “direct funders of Republican politicians for all the same reasons other businesses are. It confuses a lot of people in the libertarian world, who think of them as sellouts,” he conceded.
Their investment quickly transformed the brothers’ political status. But 1996, they had grown into major players in the Republican Party. David Koch went from dismissing Bob Dole, the senator from Kansas, the home of Koch Industries, as just another “Establishment” politician “with no moral principles,” in the early 1980s, to becoming the vice-chair of Dole’s 1996 presidential campaign against Bill Clinton. No longer an outsider, the Koch family became Dole’s third-largest financial backer. David Koch in fact hosted a birthday party for Dole, at which the candidate raised $150,000.
Dole reportedly helped the Kochs, too. Critics said he did them a legislative favor designed to indemnify companies like theirs that had been charged with regulatory violations from having to pay huge federal legal fines. But the proposed legislative fix died when a sudden outbreak of salmonella in hamburgers scared Congress from weakening such penalties. Had it passed, though, it would have nullified tens of millions of dollars in fines that had been levied on Koch Industries. According to The Washington Post, Koch Industries did succeed in getting Dole’s help on another matter, an exemption from a new real estate depreciation schedule, a favor that saved the company millions of dollars. As Dole conceded decades later, after he retired from politics, “I’ve always believed when people give big money, they–maybe silently–expect something in return.”
The Kochs’ affinity for hardball in politics, as in business, soon stirred controversy. In 1997, they became the focus of yet another Senate investigation. That year, the Clintons were in the headlines for campaign-finance scandals ranging from virtually renting the Lincoln Bedroom to big donors to taking contributions from a dubious Democratic bundler who later pleaded guilty to raising some of the money from China. The bundler, Johnny Chung, had infamously said, “I see the White House is like a subway. You have to put in coins to open the gates.” In retaliation, the Democrats in the Senate, who were in the minority, conducted their own much less noticed probe, which soon led to the two little-known brothers from Wichita.
The Democrats produced a scathing report exposing what they called an “audacious” scheme by undisclosed big donors to illegally buy elections in the final moments of the 1996 campaign. It was undertaken by a suspicious shell corporation called Triad Management Services that had paid more than $3 million for unusually harsh attack ads against Democratic candidates in twenty-nine races. More than half of the advertising money came from an obscure nonprofit group whose real source of funds was a mystery, the Economic Education Trust. The Senate committee’s investigators believed that “the ‘trust’ was in fact financed in whole or in part by Charles and David Koch of Wichita, Kansas.” The trust was a front group, according to the Senate report, designed to conceal the real donors’ identities, in violation of campaign-finance laws.
The brothers, who had long opposed restrictions on their political spending, were suspected of having secretly paid for the attack ads, most of which aired in states where Koch Industries did business. In Kansas, where Triad Management was especially active, the funds were suspected of having tipped the outcome in four close races. The conservative Republican Sam Brownback’s race for the U.S. Senate received a special boost, which included a barrage of phone calls informing voters that his opponent, Jill Docking, was a Jew. The shady victories in Kansas had national impact, helping Republicans retain control of the House of Representatives, despite Clinton’s reelection.
The Kochs, when asked by reporters if they had given the money, refused to comment. Charles Koch also failed to respond to an inquiry from the Senate investigators. In 1998, however, the Wall Street Journal finally confirmed a link, noting that a consultant on the Kochs’ payroll had been involved in the scheme. Republicans argued that they were simply trying to balance the score against spending by labor unions, but in 1998 business outspent labor by a ratio of twelve to one. In the end, the Federal Election Commission ruled that the Triad scheme was illegal and fined its president and founder, Carolyn Malenick. Other participants, however, were never identified.
Charles Lewis, who heads the Investigative Reporting Workshop at American University and who founded the Center for Public Integrity, a nonpartisan watchdog group, describes the Triad scandal of 1996 as a “historic” moment in American politics. There had of course been many bigger campaign scandals before then. But Triad was a new model. He said it was the first time a major corporation used a tax-exempt nonprofit as a front group or, as he put it, “a cutout to secretly influence elections in a threatening way.” He said the Kochs showed that “you could dump a million dollars on someone’s head by using cutouts.” After reporting on political corruption in Washington for years, Lewis concluded that “Koch Industries was the poster child of a company run amok.”
What made the Koch family’s growing financial role in American politics extraordinary was not just its willingness to flount the rules but also the way that in accordance with Fink’s plan it merged all forms of political spending–campaign, lobbying, and philanthropic–into one investment aimed at paying huge future dividends to the donors. Lewis’s Investigative Reporting Workshop spent a year in 2013 culling through the Kochs’ financial records and concluded that their operation was “unprecedented in size, scope, and funding” and also in the way that it was “mutually reinforcing to the direct financial and political interests” of Koch Industries.
In 1992, David Koch likened the brothers’ multipronged political strategy to that of venture capitalists with diversified portfolios. “My overall concept is to minimize the role of government and to maximize the role of the private economy and to maximize personal freedoms,” he told the National Journal. “By supporting all of these different [nonprofit] organizations I am trying to support different approaches to achieve those objectives. It’s almost like an investor investing in a whole variety of companies. He achieves diversity and balance. And he hedges his bets.”
What resulted from this approach was a complicated flowchart enabling the Kochs to use their fortune to influence public policy from an astounding number of different directions at once. At the top, the funds all came from the same source–the Kochs. And in the end, the contributions all served the same pro-business, limited-government goals. But they funneled the money simultaneously through three different kinds of channels. They made political contributions to party committees and candidates, such as Dole. Their business made contributions through its political action committee and exerted influence by lobbying. And they founded numerous nonprofit groups, which they filled with tax-deductible contributions from their private foundations. Other wealthy activists made political contributions, and other companies lobbied. But the Kochs’ strategic and largely covert philanthropic spending became their great force magnifier.
By 1990. enterprising conservative and libertarian activists were wearing a path to Wichita, where they, like Fink before them, would pitch their proposals to Charles Koch in hopes of his patronage. Typical was the experience in 1991 of two former Reagan administration lawyers, Clint Bolick, a former aide to Clarence Thomas, and William “Chip” Mellor III, in search of seed money for a new kind of aggressive, right-wing public interest law firm that would litigate against government regulations in favor of “economic liberty.” Mellor recalled thinking, “who else would give us enough money to be serious?” According to Mellor, after lower-level aides initially turned down the proposal, Charles Koch himself committed $1.5 million on the spot, but with strings attached, keeping him in control. As Mellor recalled, “He said, ‘Here’s what I’m going to do. I’ll give you up to $500,000 a year for three years, each year, but you have to come back each year and demonstrate that you’ve met these milestones that you’ve set out to accomplish and I will evaluate it on a yearly basis, and there’s no guarantees’.” The legal group, the Institute for Justice, went on to bring numerous successful cases against government regulations, including campaign-finance laws, several of which reached the Supreme Court.
“In recent years’ a prescient news story noted in 1992, “money from Wichita has gushed into the coffers of virtually every Washington think tank and public interest group dedicated to free-market economics and the libertarian credo of minuscule government regulation. In 1990 alone, the article noted, the three main private foundations controlled by Charles and David Koch disbursed $4 million to such ostensibly nonpartisan but politically motivated groups.
Few outside the rarefied world of far-right, laissez-faire economics noticed, but the Kochs’ multidimensional political spending kept growing. Between 1998 and 2008, for instance, Charles Koch’s private fund, the Charles G. Koch Charitable Foundation, made more than $48 million in tax-deductible grants, primarily to groups promoting his political views. The Claude R. Lambe Charitable Foundation, which was controlled by Charles and his wife, Liz, along with two company employees and an accountant, similarly made more than $28 million in tax-deductible grants. David Koch’s fund, the David H. Koch Charitable Foundation, made more than $120 million in tax-deductible grants–many to cultural and scientific projects rather than political. Meanwhile, during those years Koch Industries spent more than $50 million on lobbying. Separately, the company’s political action committee, KochPAC, donated some $8 million to political campaigns, more than 80 percent of it to Republicans. In addition, the Kochs and other family members spent millions more on personal campaign contributions.
Only the Kochs know precisely how much they spent on this sprawling political enterprise, because the public record remains incomplete. By dispersing much of the money through a labyrinth of nonprofit groups, the Kochs made the full extent of their political “investment” difficult if not impossible for the public to detect. In 2008 alone, public tax records indicate that the three main Koch family foundations gave money to thirty-four different political and policy organizations, three of which they founded and several of which they directed.
There were some legal boundaries. By law, tax-exempt charities, which the IRS designates as 501(c)(3)s, must refrain for involvement in lobbying and electoral politics and serve the public rather than their donors’ interests. But such laws are rarely enforced and are subject to flexible interpretation.
Critics began to complain that the Kochs’ approach to philanthropy subverted the purpose of tax-exempt charitable giving. A 2004 report by the National Committee for Responsive Philanthropy, a watchdog group, found the Kochs’ philanthropy self-serving. “These foundations give money to nonprofit organizations that do research and advocacy on issues that impact that profit margin of Koch Industries,” it charged.
But the Kochs defended the millions they gave to groups fighting environmental regulations and supporting lower taxes on industry and the rich as public-spirited. Several longtime associates questioned this. Gus diZerega, the former family friend, suggested that the Kochs’ youthful ardor for libertarianism had largely devolved into a rationale for corporate self-interest. “Perhaps he had confused making money with freedom,” he said of Charles. One conservative who worked closely with the Kochs but declined to be identified in order not to inflame the relationship went so far as to call their tax-exempt giving “a shell game.” He contended they merely saw philanthropy as preferable to paying taxes. “People say ‘Wow–they’re so generous!'” he marveled. “It’s just the best available option for them. If they didn’t give it to their causes, they would have to give it to the government. At least this way they control how it’s spent.” He noted that by blending their corporate and charitable work, “they draw some pretty fine lines. It’s really another form of lobbying.” But he conceded, “They’ve built a pretty amazing machine.”
From the start, the Kochs exerted unusually tight personal control over their philanthropic endeavors. “If we’re going to give a lot of money, we’ll make darn sure they spend it in a way that goes along with our intent,” David Koch has acknowledged. “And if they make a wrong turn and start doing things we don’t agree with, “he told Doherty, “we withdraw funding.”
An early example of Charles Koch flexing his muscles took place at the Cato Institute in 1981, when he fired one of the think tank’s five original stockholders. Ironically, although Charles had criticized Robert Welch for turning the John Birch Society into a cult of personality by flaunting his ownership of the organization’s stock, Charles had set Cato up in the same way, as a nonprofit with stockholders, who picked the board of directors. The arrangement was rare in the nonprofit world. But as Charles had observed of the John Birch Society, it guaranteed the directors an unusual measure of continuing control.
The director whom Charles fired at Cato was a major figure in libertarian circles, Murray Rothbard, a radical Upper West Side Jewish intellectual whose work Charles had subsidized in happier days. Rothbard called the putsch “iniquitous,” “high-handed,” and “illegal.” He went on to claim that Charles had “confiscated the shares which I had naively left in Koch’s Wichita office for ‘safekeeping,’ an act clearly in violation of our agreement as well as contrary to every tenet of libertarian principle.”
Some suspected that Rothbard, an Austrian economic school purist, was fired for criticizing Koch, whom he had accused of watering down unpopular libertarian positions in order to get more votes for his brother’s 1980 candidacy. The platform, for instance, had pulled back from advocating the complete abolition of all income taxes. It also called for shrinking rather than abolishing the military. The controversy set off alarms in the hothouse libertarian community, marking Charles in the eyes of those who took Rothbard’s side as ruthless and rapacious, more interested in power than in principle.
Charles’s drive control was the force later of testimony that Rothbard gave in one of the many rounds of fights between the four Koch brothers over their patrimony. A memo summarizing Rothbard’s prospective testimony quoted him saying that Charles “cannot tolerate dissent” and will “go to any end to acquire/retain control over the nonprofit foundations with which he is associated.” Rothbard accused Charles of dictating everything from the office decor to the design of Cato’s stationery. Further, he alleged that while Charles wanted “absolute control” of the nonprofits with which he was associated, he was intent on “being able to spend other people’s money.” This criticism would later be reprised in connection with the Koch seminars, which some saw as Charles’s means of creating a political slush fund filled with other people’s money but under his own control. Rothbard also accused Charles of using nonprofit organizations to “acquire access to, and respect from, influential people in government.””
(THE AUTHOR HERE WROTE A GREAT STORY WITH A NUMBER OF CHAPTERS WRITTEN SPECIFICALLY ABOUT ONE OF THE GREAT CONTRIBUTORS OF CAMPAIGN MONEY (KOCH BROTHERS) AND IN SCHEMES OF HOW IT WOULD ENRICH THEMSELVES AT THE COST TO THE AMERICAN TAXPAYERS. AND, IN THE END, TYING INTO THE WHOLE WORLD ECONOMY, AS WELL AS ISSUES OF GLOBAL WARNING AND THE AFFECTS IT’S GOING TO HAVE ON OUR DRINKING WATER AND AIR POLLUTION. THESE SCHEMES ARE ALL TIED UP TOGETHER IN PONZI SCHEMES TO ELECTING WHAT THEY CONSIDER THE RIGHT PEOPLE IN OFFICE CAUSED BY THEIR HUGE CONTRIBUTIONS, WHICH IS BETTER KNOWN AS “DARK MONEY.” IF THE POLITICIANS, RUNNING FOR OFFICE TODAY, FAIL TO ADDRESS THIS ISSUE AND DON’T REGULATE THE AMOUNT OF MONEY PUT INTO RUNNING AN HONEST ELECTION, AS WELL AS WALL STREET AND HONEST BANKING SYSTEM, SEPARATING THE COMMERCIAL BANKS FROM THE INVESTMENT BANKS BY REINSTATING THE GLASS-STEAGALL ACT, WE WILL CONTINUE TO HAVE A GROWING INEQUALITY PROBLEM BETWEEN THE RICH AND THE POOR AND IT’S GETTING WORSE. I GIVE CREDIT TO POPE FRANCIS FOR TRAVELING AROUND THE WORLD EMPHASIZING THIS PROBLEM AND THE INCREASED NUMBER OF IMMIGRANT PROBLEMS IN THIS COUNTRY AND REFUGEES IN EUROPE, LOOKING FOR A BETTER WAY OF LIFE. WATCH THE MOVIE “KOCH BROTHERS EXPOSED” AND SEE HOW THE TWO TIE IN TOGETHER.

LaVern Isely, Progressive, Overtaxed, Independent Middle Class Taxpayer and Public Citizen Member and USAF Veteran

Advertisements

About tim074

I'm a retired dairy farmer that was a member of the National Farmer's Organization (NFO). Before going farming, I spent 4 years in the United States Air Force where I saved up enough money to get my down payment to go farming. I also enjoy writing and reading biographies and I write about myself as well as articles and excerpts I find interesting. I'm specifically interested in finances, particularly in the banking industry because if it wasn't for help from my local Community Bank, I never could have started farming which I was successful at. So, I'm real interested in the Small Business Administration and I know they are the ones creating jobs. I have been a member of Common Cause and am now a member of Public Citizen as well as AARP. I have, in the past, written over 150 articles on the Obama Blog (my.barackobama.com) and I'd like to tie these two sites together. I'm also on Twitter, MySpace and Facebook and find these outlets terrifically interesting particularly what many of these people did concerning the uprising in the Arab world. I believe this is a smaller world than we think it is and my goal is to try to bring people together to live in peace because management needs labor like labor needs management. Up to now, that hasn't been so easy to find.
This entry was posted in Uncategorized. Bookmark the permalink.

One Response to The Kochotopus: Free Market Machine

  1. Frank says:

    Greetings from Florida! I’m bored at work so I decided to browse your blog on my
    iphone during lunch break. I love the information you
    present here and can’t wait to take a look when I get home.
    I’m amazed at how fast your blog loaded on my mobile ..

    I’m not even using WIFI, just 3G .. Anyways, awesome blog!

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s