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The real-world verdict about MBM’s efficacy was less clear than Charles Koch’s faith in it. In 2018, as Charles Koch listened to a parade of business leaders describe their operations, there were signs of trouble within Koch Industries. If MBM really was the code of achieving prosperity, then prosperity was necessarily an uneven and volatile thing.
Invista, for example, was deeply troubled. Depending on one’s point of view, the Invista acquisition in 2004 was either a disappointment or a disaster. In the spring of 2018, the Invista wing of the Koch Industries headquarters was like a ghost town of empty cubicles. In 2017 alone, Invista cut fifty-two jobs in Athens, Georgia, sold a plant in Tennessee, and sold another one in Derry, Ireland. It seemed that MBM couldn’t fix whatever ailed Invista and the global market in synthetic fabrics. Similarly, MBM seemed inadequate to reduce workplace injuries inside Georgia-Pacific. The injury rate fell slightly during the first few months of 2018, but was still at the elevated levels that began in 2012. Jim Hannan and his team were still trying to solve the problem, but it stubbornly persisted.
There were also signs that Koch Industries, in spite of strict adherence to MBM, was repeating some of the mistakes of the 1990s. The company’s acquisition spree had once again saddled it with wildly diversified units that seemed like an unnatural fit with one another—glass, steel, computer sensors, greeting cards, and advanced fertilizers, all under one roof. Molex, the microchip and sensor company, was already delivering mixed results. In 2017, a Molex plant in Minnesota laid off 136 employees.
The economy itself was shaky in the spring of 2018. The stock market swung wildly, rising and falling with volatility that hadn’t been seen in years. There was speculation that the economy had overheated, thanks in part to the kind of government intervention Charles Koch despised. The Federal Reserve Bank had kept interest rates at zero for several years after the crash of 2008, pumping global markets with easy money. This was compounded by a program called Quantitative Easing, which essentially pumped more than $3.5 trillion of new US dollars into the economy. If this radical monetary policy caused asset bubbles to appear in different pockets of the US economy, those bubbles might soon pop. When that happened, Koch’s corporate structure would be tested in ways it hadn’t been tested in a decade. The weaker divisions might suffer massive losses.
If the economic future was uncertain, Charles Koch seemed supremely calm during the winter and spring months of 2018. This might have been due to that fact that even in the worst-case economic scenarios, there was seemingly no plausible scenario in which Koch Industries actually failed. There might be layoffs. The company might have to sell some divisions at fire-sale prices. But the Koch Industries entity itself, the core business that executives referred to as KII, seemed impervious to failure. There was simply too much cash in the company, and too little debt, to envision it going under. Koch’s bread-and-butter assets—the oil refineries, the fertilizer plants, the paper mills, the commodities trading desks—were part of the machinery that provided life’s necessities. People would buy gasoline and fertilizer during any recession, and it was unlikely that big companies could swoop in and build multibillion-dollar facilities to steal Koch’s share of the business. Koch’s business was also protected by the masterfully constructed corporate veil, the massive, multichambered legal nautilus shell that walled off various parts of the company from one another. Divisions could fail and be sued, but the damage would never penetrate to the heart of KII.
Charles Koch had other reasons to be supremely calm during 2018. If Koch Industries was impervious to bankruptcy, then Charles Koch was outright immune to it. If ever there was evidence for his faith in his own abilities, and the power of MBM, then it was in the size of his private fortune.
In 1991, Fortune magazine estimated that Charles and David Koch were worth a combined $4.7 billion, putting them among the wealthiest people in the world. This fortune was the estimated value of Charles and David’s roughly 80 percent ownership stake in Koch Industries, which the brothers split evenly.
The policies of the Clinton presidency did not diminish this fortune. During the 1990s, the Kochs’ family fortune almost doubled. In 2002, Forbes magazine estimated that Charles and David Koch were worth a combined $8 billion.
The fortune exploded during the Bush years, against a backdrop of growing government, uneven economic growth, and overseas military campaigns. In 2007, Charles Koch alone was worth an estimated $17 billion. He and his brother were worth a combined $34 billion, the third-largest fortune in the United States behind Warren Buffett’s.
During the Obama years—the years when Americans for Prosperity warned repeatedly about the threat of creeping socialism—Charles and David Koch’s fortune more than doubled once again. At the end of the Obama administration, Charles Koch was worth $42 billion. Together, Charles and David were worth $84 billion, a fortune larger than Bill Gates’s $81 billion. By 2018, Charles Koch’s fortune amounted to $53.5 billion.
Charles Koch was so rich in part because he fought so hard, for so many years, to keep his company private. The vast majority of Koch Industries’ ownership wasn’t spread among thousands of shareholders, but only two. The employees at Koch Industries—including its senior executives—could not earn a real equity stake in the firm, no matter how hard they worked. They earned, instead, the right to shadow stock, essentially a derivatives contract based on the company’s performance. They also earned onetime merit bonuses.
This ownership structure, while rare in corporate America, reflected the US economy in 2018. Charles Koch’s household was part of an exclusive club—about 160,000 households in America were in the wealthiest 0.1 percent of the population. This group prospered just like Charles Koch. In 1963, the top 0.1 percent of households possessed 10 percent of all American wealth. By 2012, they possessed 22 percent. This gain came as the vast majority of Americans’ lost ground. The bottom 90 percent of Americans possessed about 35 percent of the nation’s wealth in the mid-1980s. By about 2015, their share had fallen to 23 percent.
The American labor market resembled the labor market inside Kochland. For more and more Americans, employment and income were now contingent, temporary, and reflected the volatile swing of market conditions. Labor unions, which had shielded workers from financial volatility for decades, were a negligible sideshow of the American economic scene. Militant unions like the OCAW at the Pine Bend refinery were a novelty found in history books. Even the modern, relatively powerless unions like the IBU in Oregon were vanishingly rare. Full-time jobs were increasingly replaced by contract jobs and part-time work. Pensions were replaced by 401(k) plans, whose value rose and fell with the markets. Pay was not steady and was increasingly tied to bonuses rather than annual raises. Across America, the ownership of wealth reflected the ownership structure of Koch Industries. The vast majority of Americans owned shadow stock in the American enterprise.
This disparity in American wealth reflected the disparity in political power. The rich and well connected shaped policy in America. It helped, in 2018, to have several hundred million dollars at your disposal and a large lobbying office, coupled with think tanks and a grassroots army, to have your policy preferences recognized. In 2014, a group of political scientists at Princeton studied the policy outcomes on 1,779 issues between 1980 and 2002. They found that no group in America had a surefire hold over policy making. But the rich—a group they called the “economic elite”—had, by far, the best chance of turning their policy choices into a reality. The second most-powerful entities in Washington were special interest groups like lobbying organizations, which had a lower success rate than the economic elite, but still held significant sway. Significantly, the impact of median-income Americans, meaning the majority, on policy outcomes was “near zero.” The study concluded, succinctly: “When a majority of citizens disagrees with economic elites or with organized interests, they generally lose.”