When Charles Koch took control of the company, America operated under a political framework called the New Deal, which was characterized by dramatic government interventions into the private marketplace, empowered labor unions, tightly regulated energy companies, and a shackled financial industry. Charles Koch despised it. He subscribed to the philosophy of Austrian economists such as Ludwig von Mises, who believed that government intervention only created more harm than good. During Charles Koch’s career, the New Deal system fell apart. The system wasn’t replaced by a libertarian society, as Charles Koch might have wanted, but by a dysfunctional political economy characterized by selective deregulation coupled with a sprawling welfare and regulatory state. Charles Koch didn’t just operate within this political framework. He dedicated his life to transforming it. He created a political influence network that is arguably the most powerful and far-reaching operation ever run out of an American CEO’s office. Koch Industries has one of the largest, most well-funded lobbying operations in the United States. Its efforts are coupled with a nationwide army of activists and volunteers called Americans for Prosperity, along with a constellation of Koch-funded think tanks and university-based programs. Charles Koch’s political vision represents one extreme pole in the ongoing debate about the role of government in markets; a view that government should essentially protect private property and do little else. Political figures on the opposite pole believe that a robust federal government should provide a safety net and contain the power of large corporations. There is currently no political consensus in support of either view.
As the argument between these visions drags on in a stalemate, the modern American economy is one that favors giant companies over the small, and the politically connected over the independent. More than anything, it favors companies that can master complexity—the complexity of interconnected and global marketplaces, and the complexity of wide-reaching, intrusive regulatory regimes.
Charles Koch frequently derides the current political era as one of “crony capitalism,” but the company he built is perfectly suited to thrive in this environment. Koch Industries employs an army of legal experts to navigate the extensive legal intrusion of the state. A similarly large group of market analysts and traders navigate the fractured and byzantine markets of energy products. It is revealing that Koch Industries expands, almost exclusively, into businesses that are uncompetitive, dominated by monopolistic firms, and deeply intertwined with government subsidies and regulation.
To take just one example: Koch derives much of its profits from oil refineries. The entire economy depends on refined oil, but no one has built a new oil refinery in the United States since 1977. The industry is dominated by entrenched players who run aged facilities at near-full capacity, reaping profits that are among the highest in the world. A single refinery shutdown causes gasoline prices to spike across entire regions of the United States. The underlying cause of this dysfunction is a set of loopholes in the Clean Air Act, a massive set of regulations passed in 1963 (and significantly expanded in 1970) that imposed pollution controls on new refineries. The legacy oil refiners, including Koch, exploited arcane sections of the law that allowed them to expand their old facilities while avoiding clean-air standards that would apply to new facilities. This gave them an insurmountable advantage over any potential new competitor. The absence of new refineries to stoke competition and drive down prices meant that Americans paid higher prices for gasoline.
Koch Industries has applied its profits to maximum advantage. In 2018, the company’s headquarters campus in Wichita resembled a fortified kingdom. The facility was expanded in 2014, with the addition of several thousand square feet of office space in buildings arrayed at the base of the iconic Koch Tower—a large building with black windows and gleaming dark granite. The renovation also included the installation of a tall, earthen wall surrounding the north side of the campus. A local city street was diverted around the wall, at Koch’s expense, to keep passersby at a safe distance. Seldom has a company gained such deep reach into so many Americans’ lives while simultaneously walling itself away into an insular community.
Koch Industries’ employees arrive to work early, creating small traffic jams at entrances to the campus, under the watch of security guards. Many of them enter Koch Tower through an underground pedestrian tunnel, passing a series of photo collages that memorialize Koch’s history. They reach an underground lobby and an elevator bank, where the portrait of Charles Koch hangs on the wall. It is one of those composite portraits, made of countless tiny images that combine to form a larger picture. The tiny images are of Koch’s employees; the larger picture is Charles Koch. Across the lobby, employees shop at the company store, called Hot Commodities, where they can buy coffee or an audio CD relating the history of founder Fred Koch. There is a magazine rack stocked with glossy copies of the company newsletter, called Discovery, which regularly features columns by Charles Koch.
When each employee is hired, he or she undergoes a multiday training session to learn the tenets of Charles Koch’s philosophy, Market-Based Management, or MBM as they call it. Charles Koch says the philosophy is a blueprint for achieving prosperity and freedom. It is equally applicable to business ventures, personal habits, and national government. Adherence to the creed is nonnegotiable for anyone who remains at Koch Industries. Charles Koch, in one of his books, writes that an “act of conversion” is necessary for MBM to be effective. It cannot be adopted in bits and pieces. The Ten Guiding Principles of MBM are printed and hung above cubicles throughout company headquarters. When employees get free coffee in the break room, the Guiding Principles are printed on their disposable cups. The employees learn MBM’s vocabulary and speak a language among themselves that only they truly understand. They drop phrases like “mental models,” “experimental discovery,” and “decision rights,” that instantly convey deep meaning to insiders. The employees become more than employees; they become citizens of an institution with its own vocabulary, its own incentives, and its own goals in the world. The financial success of Koch Industries only reinforces the idea that what they are doing is right and that the tenets of MBM are indeed the key to proper living.
Because this book is the biography of an institution, not an individual, many people will come and go through its pages. Readers will meet Heather Faragher, a Koch employee who blew the whistle on systematic wrongdoing inside Koch, only to face the harshest consequences. Readers will meet Bernard Paulson, a hard-driving executive who helped Koch Industries break the back of a militant labor union. They will meet Dean Watson, a rising star at Koch Industries, who embraced the teachings of Market-Based Management but whose career collapsed under the weight of his own ambition. They will meet Philip Dubose, a Koch employee who stole oil to make his bosses happy. They will meet Steve Hammond, a warehouse worker who negotiated for workers’ rights against his bosses at Koch. And they will meet Brenden O’Neill, a striving middle-class man from Wichita who became a millionaire on Koch’s commodity trading floors. Unfortunately, many of these people will arrive and then fall away as Koch Industries moves forward and changes with the times. This is the nature of large institutions. The people in them come and go. If it is difficult to keep track of so many individuals, readers can turn to an alphabetical directory of characters at the end of the book.