The Kochtopus: Free Market Machine – Part II

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 149 and I quote: “In the mid-1980s, as called for in the first phase of Fink’s plan, the Kochs also began to establish an academic beachhead of their own. Their particular focus was on George Mason University, a little-known campus of Virginia’s prestigious higher-education system, located in the Washington suburbs. In 1977, The Washington Post described the school as toiling in “the wilderness of obscurity.” By 1981, Fink had moved his Austrian economics program there from Rutgers, eventually naming it the Mercatus Center. The think tank was entirely funded by outside donations, largely from the Kochs, but it was located in the midst of the public university’s campus, so it touted itself, somewhat misleadingly, as “the world’s premier university source for market-oriented ideas–bridging the gap between academic ideas and real-world problems.”
Financial records show that the Koch family foundations donated some $20 million to the school, much of it going to the Mercatus Center. The Washington Post described Mercatus as a “staunchly anti-regulatory center funded largely by Koch Industries Inc.” This, however, raised questions about whether the Mercatus Center was in fact an independent intellectual center or an extension of the Kochs’ lobbying operation. Clayton Coppin, who taught history at George Mason and compiled the confidential study of Charles’s political activities for Bill Koch, describes Mercatus outright in his report as “a lobbying group disguised as a disinterested academic program.” The arrangement, he points out, had financial advantages for the Kochs, because it enabled Charles “to have a tax deduction for financing a group, which for all practical purposes is a lobbying group for his corporate interest.”
Sharing a building with the Mercatus Center was the heavily Koch-funded Institute for Humane Studies, chaired by Charles Koch. The IHS was founded by F. A. “Baldy” Harper, a free-market fundamentalist who had been a trustee at the Freedom School, where he had written essays for The Freeman, calling taxes “theft,” welfare “immoral,” and labor unions “slavery” and opposing court-ordered remedies to racial segregation. Charles Koch had eulogized Harper glowingly, saying, “Of all the teachers of liberty, none as well-beloved as Baldy, for it was he who taught the teachers and, in teaching, taught them humility and gentleness.”
The aim of the IHS was to cultivate and subsidize a farm team of the next generation’s libertarian scholars. Anxious at one point that the war of ideas was proceeding too slowly, Charles reportedly demanded better metrics with which to monitor students’ political views. To the dismay of some faculty members, applicants’ essays had to be run through computers in order to count the number of times they mentioned the free-market icons Ayn Rand and Milton Friedman. Students were tested at the beginning and the end of each week for ideological improvement. The institute also housed the Charles G. Koch summer internship program, a paid fellowship placing students who shared the Kochs’ views in like-minded nonprofit groups, where they could join the libertarian network.
George Mason’s economics department, meanwhile, became a hotbed of controversial theories that began to transform Americans’ tax bills, serving as an incubator for the supply-side tax cuts in the Reagan administration that hugely advantaged the rich. Paul Craig Roberts, an adjunct professor at GMU, drafted a precursor to the first supply-side tax cut bill of the Reagan era, which was introduced by his former boss Congressman Jack Kemp. While these tax cuts starved the government, George Mason also belittled its role philosophically. A star on its faculty was James Buchanan, the founder of “public choice” theory, who often described his approach as “politics without romance” because he categorized elected officials and public servants as just another greedy, self-aggrandizing private interest group, a view popular with antigovernment libertarians. In 1986, Buchanan was awarded a Nobel Prize in economics. Liberal economists were aghast. Robert Lekachman, for instance, lambasted Buchanan for reducing “all human behavior to simple self-interest.” The prize nonetheless was an indisputable achievement, helping to put the school, and libertarianism, on the map.
Julian Sanchez, a fellow at the Cato Institute, soon exalted George Mason as a “libertarian mecca,” saying “It may well be the most heavily libertarian-staffed institution of higher education in the country.” Liberals, however, regarded the Kochs’ singular influence over the school with suspicion. “It’s ground zero for deregulation policy in Washington,” said Rob Stein, the Democratic political strategist who studied how the right wing spent money. Noting the Kochs’ unusually large role, he said, “George Mason is a public university and receives public funds. Virginia is hosting an institution that the Kochs practically control.”
The many hats that Rich Fink wore only underscored critics’ concerns. As he grew in importance to Charles Koch, Fink relinquished his formal role at the Mercatus Center, handing its stewardship off to a protege, and joined Koch Industries as it head of lobbying but remained on the university’s prestigious Board of Visitors. He also was at one point the president of the Charles G. Koch Charitable Foundation, the president of the Claude R. Lambe Charitable Foundation, a director of the Fred C. and Mary R. Koch Foundation, and an integral member of several of the Kochs’ political groups. The fungibility of his roles hinted at the fine line between nonprofit and for-profit pursuits within the Kochs’ enterprise.
As Fink’s star rose, Crane’s fell. Crane still ran the Cato Institute, but in 1992 Charles Koch resigned from the libertarian think tank’s board, although David remained a trustee. Associates suspected that Crane, who didn’t take orders gladly, had not demonstrated sufficient fealty for his patron. Crane had privately ridiculed Charles’s management philosophy, which Charles trademarked under the name Market-Based Management, or MBM, and later distilled into his book The Science of Success. In essence, Charles believed that businesses’ corporate culture should replicate the competitiveness of the free market. Employees at almost every level of his company were compensated on the basis of the value they created, competing with each other for bonuses, which constituted large portions of their annual pay. Charles described MBM as a “holistic system” containing “five dimensions; vision, virtue and talents, knowledge processes, decision rights and incentives.” Some company employees privately mocked the cutthroat culture that MBM fostered as “Making the Brothers Money.” Forbes, too, lampooned Charles a bit, in its review of his book, describing him as an “autodidact” who had “almost a Marxist faith in ‘fixed laws’ that ‘govern human well-being'” and whose “system for grading employees” was “especially obtuse.”
Despite the mixed reviews, Charles insisted that personnel in all corners of his enterprise adhere to his system, setting aside regular time to practice and review the techniques. “It became exactly the kind of bureaucracy that libertarians detest,” noted one former employee, before adding, “He’s the billionaire, not me, so who knows?” Market-Based Management embraced the notion that employees at every level, even the bottom, might have superior ideas to those at the top. Theoretically, it was an egalitarian approach, yet how open Charles really was to those like Crane who challenged his top-down authority is debatable. Many found him remarkably humble for one of the wealthiest men in the world, noting that he lunched regularly in the company cafeteria alongside his employees. But in a 1999 speech, Charles likened his fixed beliefs to those of Martin Luther, the founder of Protestantism. “In that, I echo Martin Luther,” he said of his own free-market views. “Here I stand. I can do no other.” The comparison was revealing.
In any case, Crane was less than reverent when Charles tried to impose his management system on the Cato Institute. From his large office in Cato’s strikingly modern, light-filled Washington headquarters, Crane later made clear that he regarded Charles as a serious thinker and an exemplary businessman, but he couldn’t help but poke fun at MBM. “He thinks he’s a genius. He’s the emperor, and he’s convinced he’s wearing clothes,” Crane said with a snicker. Fink, by contrast, was much more solicitous of Charles’s ideas. “Richie exploited MBM to the hilt, a Cato official said of Fink. “He took over with a shiv” in Crane’s back. “He’s well named.”
With Cato and the Institute for Humane Studies, the Kochs checked off the first item on Fink’s shopping list for social change–institutions that could hatch scholarly ideas in line with their own thinking. The Mercatus Center checked off the second item, a more practical organization aimed at promoting these ideas into action. Its location, just across the Potomac from the Capitol, was a bonus, enabling its fellows to testify regularly as independent experts at congressional hearings. By 2004, The Wall Street Journal dubbed it “the most important think tank you’ve never heard of ” and noted that fourteen of the twenty-three regulations that President George W. Bush placed on a “hit list” had been suggested by Mercatus scholars. Eight of those were environmental protections. Fink told the paper that the Kochs have “other means of fighting [their] battles” and that the Mercatus Center does not actively promote the company’s private interests. But Thomas McGarity, a law professor at the University of Texas who specialized in environmental issues, argued that “Koch has been constantly in trouble with the EPA, and Mercatus has constantly hammered on the agency.” One environmental lawyer who clashed repeatedly with the Mercatus Center dismissed it as a lobbying shop dressed up as a nonprofit, calling it “a means of laundering economic aims.” The lawyer explained the strategy; “You take corporate money and give it to a neutral-sounding think tank,” which “hires people with pedigrees and academic degrees who put out credible-seeming studies. But they all coincide perfectly with the economic interests of their funders.”
In 1997, for instance, the EPA moved to reduce surface ozone, a form of air pollution caused, in part, by emissions from oil refineries. Susan Dudley, an economist who became a top official at the Mercatus Center, came up with a novel criticism of the proposed rule. The EPA, she argued, had not taken into account that by blocking the sun, smog cut down on cases of skin cancer. She claimed that if pollution were controlled, it would cause up to eleven thousand additional cases of skin cancer each year.
In 1999, the District of Columbia Circuit Court embraced Dudley’s pro-smog argument. Evaluating the EPA rule, the court found that the EPA had “explicitly disregarded “the “possible health benefits of ozone.” In another part of the opinion, the court also ruled, 2-1, that the EPA had overstepped its authority.
Afterward, the constitutional Accountability Center, a watchdog group, revealed that the judges in the majority had previously attended one of the all-expenses-paid legal seminars for judges that were heavily funded by the Kochs’ foundations. This one had taken place on a Montana ranch run by a group that the Kochs helped subsidize called the Foundation for Research on Economics and the environment. The judges claimed that their decision was unaffected by the junket. Their embrace of the Mercatus Center’s novel argument, however, soon proved embarrassing. The Supreme Court overruled their position unanimously, noting that the Clean Air Act’s standards are absolute and not subject to cost-benefit analysis. Although their side lost in the end, the case illustrated that the Kochs’ ideological pipeline was humming.
The most fateful Mercatus Center hire might have been Wendy Gramm, an economist and director at the giant energy company Enron who was the wife of Senator Phil Gramm, the powerful Texas Republican. In the mid-1990s, she became the head of Mercatus’s Regulatory Studies Program. There, she pushed Congress to support what came to be known as the Enron Loophole, exempting the type of energy derivatives from which Enron profited from regulatory oversight. Both Enron and Koch Industries, which also was a major trader of derivatives, lobbied desperately for the loophole. Koch claimed there was no need for government policing because corporations’ concern for their reputations would cause them to self-regulate.
Some experts foresaw danger. In 1998, Brooksley Born, chair of the Commodity Futures Trading Commission, warned that the lucrative but risky derivatives market needed more government oversight. But Senator Gramm, who chaired the Senate Banking Committee, ignored such warnings, crafting a deregulatory bill made to order for Enron and Koch, called the Commodity Futures Modernization Act. Despite Born’s warning, the Clinton administration embraced the exemptions too, swayed by Wall Street pressure.
In 2001, Enron collapsed in a heap of bogus financial statements and fraudulent accounting practices. But Wendy Gramm had pocketed up to $!.8 million from Enron the year after arguing for the loophole. And it emerged that before going under, Enron had made substantial campaign contributions to Senator Gramm, while its chairman, Kenneth Lay, had given money to the Mercatus Center.
By the end of 2002, the Gramms had gone into semiretirement, but at the Mercatus Center the zeal to exempt enormously risky markets, including energy derivatives favored by Koch Industries, lived on. The consequences wouldn’t become fully visible until the economic crash of 2008. By then, George Mason University was both the largest single recipient of Koch funds for higher education and the largest research university in Virginia.
George Mason was the Kochs’ largest libertarian academic projects but far from the only one. By 2015, according to an internal list, the Charles Koch Foundation was subsidizing pro-business, antiregulatory, and antitax programs in 307 different institutions of higher education in America and had plans to expand into 18 more. The schools ranged from cash-hungry West Virginia University to Brown University, where the Kochs, in the tradition of the Olin Foundation, established an Ivy League “beachhead.”
At Brown, which is often thought of as the most liberal of the Ivy schools, Charles Koch’s foundation gave $147,154 in 2009 to the Political Theory Project, a freshman seminar in free-market classics taught by a libertarian, Professor John Tomasi. “After a whole semester of Hayek, it’s hard to shake them off that perspective over the next four years,” Tomasi confided “slyly,” according to a conservative publication. Charles Koch’s foundation gave additional funds to Brown to support faculty research and postdoctoral candidates in such topics as why bank deregulation is good for the poor.
At West Virginia University, the Charles Koch Foundation’s donation of $965,000 to create the Center for Free Enterprise came with some strings attached. The foundation required the school to give it a say over the professors it funded, in violation of traditional standards of academic independence. The Kochs’ investment had an outsized impact in the small, poor state where coal, in which the Kochs had a financial interest, ruled. One of the WVU professors approved for funding, Russell Sobel, edited a 2007 book called Unleashing Capitalism: Why Prosperity Stops at the West Virginia Border and How to Fix It, arguing that mine safety and clean water regulations only hurt workers. “Are workers really better off being safer but making less income?” it asked. Soon, Sobel was briefing West Virginia’s governor and cabinet, as well as a joint session of the Senate and the House Finance Committees. The state Republican Party chairman declared Sobel’s antiregulatory book the blueprint for its party platform.
In 2014, a sparsely regulated West Virginia company, Freedom Industries, spilled ten thousand gallons of a mysterious, foul-smelling chemical into the drinking water of Charleston, the state’s largest city, triggering panic in 300,000 residents, whom authorities ordered away from their taps. It was just another in a seemingly endless history of tragic industrial disasters afflicting West Virginia. By then. though, Sobel was long gone. He was listed as a visiting scholar at the Citadel in South Carolina, and an expert at the Mercatus Center at George Mason University.
Defenders of the Kochs’ growing academic influence, like John Hardin, director of university relations at the Charles Koch Foundation, argued that their grants were bringing ideological diversity and debate to campuses. “We support professors who add to the variety of ideas available on college campuses. And in every case the school maintains control over its staffing and teaching decisions,” he wrote in The Wall Street Journal.
But in the eyes of critics the Kochs had not so much enriched as corrupted academia, sponsoring courses that would otherwise fail to meet the standards of legitimate scholarship. John David, an economics professor at West Virginia University Tech who witnessed the school’s transformation, wrote in a scathing newspaper column that it had become clear that “entire academic areas at universities can be bought just like politicians. The difference is that universities are supposed to permit open dialogue and exchange of ideas and not be places for the indoctrination of innocent students with dictated propaganda prescribed by outside special interests.”
The first two steps of Fink’s plan were now complete. Yet the Koch brothers concluded that these steps were still not enough to effect change. Free-market absolutism was still a sideshow in American politics. They needed the third and final phase of Fink’s plan–a mechanism to deliver their ideas to the street and to mobilize the public’s support behind them. “Even great ideas are useless if they remain trapped in the ivory tower,” Charles noted in a 1999 speech. David put it differently. “What we needed was a sales force.””
(THE FOLLOWING IS ABOUT THE AUTHOR AND I QUOTE:
“JANE MAYER is a staff writer for The New Yorker and the author of three bestselling and critically acclaimed narrative nonfiction books. She co-authored Landslide: The Unmaking of the President, 1984-1988, with Doyle McManus, and Strange Justice: The Selling of Clarence Thomas, with Jill Abramson, which was a finalist for the National Book Award. Her book The Dark Side: The Inside Story of How the War on Terror Turned into a War on American Ideals, for which she was awarded a Guggenheim Fellowship, was named one of The New York Times’s Top 10 Books of the Year and won the J. Anthony Lukas Book Prize the Goldsmith Book Prize, the Weital Prize, the Ridenhour Prize, the New York Public Library’s Helen Bernstein Book Award for Excellence in Journalism, and the Robert F. Kennedy Book Award. It was also a finalist for the National Book Award and the National Book Critics Circle Award. For her reporting at The New Yorker, Mayer has been awarded the John Chancellor Award, the George Polk Award, the Toner Prize for Excellence in Political Reporting, and the I. F. Stone Medal for Journalistic Independence presented by the Nieman Foundation at Harvard. Mayer lives in Washington, D.C.”
LaVern Isely, Progressive, Overtaxed, Independent Middle Class Taxpayer and Public Citizen Member and USAF Veteran

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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.
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