Kochland: The Secret History of Koch Industries and Corporate Power in America

Image of Kochland: The Secret History of Koch Industries and Corporate Power in America
Release Date: 
August 13, 2019
Simon & Schuster
Reviewed by: 

“If you want a crash course in the evolution of postmodern capitalism over the last five decades read Kochland.”

If you have a long, long weekend and want to take a crash course in the evolution of postmodern capitalism over the last five decades read Kochland. It is a truly exhaustive study about one man, Charles Koch [pronounced “coke”] and one company, Koch Industries (KI), but it tells a far bigger story. Christopher Leonard has done his homework, drawing on countless interviews, innumerable company documents, research studies, federal reports, and third-party resources to tell his compelling story.

Leonard opens his tale of plunder with a set of simple observation that few Americans are likely aware of, but which point—like North stars—to how the book’s 574-page narrative plays out. “Koch Industries’ annual revenue is larger than that of Facebook, Goldman Sachs and U.S. Steel combined,” he acknowledges. He also points out that the two men who jointly own Koch Industries, Charles and his brother David Koch, together are worth $120 billion, with fortunes “larger than Amazon CEO Jeff Bezos, or Microsoft founder Bill Gates.” A final point is probably the most telling. Since taking the helm of the company from his father in 1967 (and defeating his brother William for control), Charles Koch has maintained complete control of this privately held conglomerate.

The book is organized in the three chronological sections—1987–2000, 2000–2010, and 2010–2018. However, each section consists of individual chapters that analyze a major theme or incident that shapes the narrative. Together they tell an impressive tale of the making of an old-fashion Robber Baron, with roots in oil refining, fertilizer and consumer products, into a postmodern 0.1 percenter overseeing a huge industrial conglomerate and private equity empire.

Foremost, Kochland is about Charles Koch. The author is only marginally concerned about the Koch as a person with sketchy accounts of his childhood, his demanding father, and his current family; he does explore the struggle for power between Koch and his brother, William, and the possible role that his son, Chase, as a successor. However, there’s little insight into his relations with his wife or daughter (other than she left Wichita and never looked back) and no sense that Koch has any life outside his business. 

The book is anchored in explaining Koch’s fundamentalist capitalist philosophy, what he dubbed “Market-Based Management” (MBM). Each chapter examines how it was formulated, evolved over time (especially when the company faced serious crises), and was implemented in different industrial settings.

Koch’s approach is best understood as a form of “free market” capitalism, a radical libertarianism based on the writings of Frederick Hayek and Ludwig von Mises. In 2007, he published The Science of Success: How Market-Based Management Built the World's Largest Private Company. For Koch, MBM is KI’s operating ethos and is taught—like a religious ideology—to new company employees in days-long seminars.

Leonard builds his complex story through a strong narrative style that personalizes the critical challenges Koch and KI faced as the two evolved over the last four decades. The first major challenge involves KI’s Pine Bend Refinery, located near Minnesota’s Twin Cities, and the unionized workers, members of the Oil, Chemical and Atomic Workers. Koch, a fundamentalist free-marketeer, is staunchly opposed to unions, believing workers are really “entrepreneurs” and don’t need collective representation. A bitter, and sometimes violent strike drags on for nearly a year until the union capitulates. This battle set the model for how KI dealt with all subsequent challenges—like workers at Georgia Pacific—as its model of absolute control over the workplace and workers.

Koch was deeply alarmed by the Pine Bend strike. In a revealing 1974 speech, he warned, “Anticapitalist feelings in the United States are probably more virulent today than ever before.” He spoke before one of the many conservative think tanks he funded as part of an aggressive—and expensive—effort to turn his libertarian beliefs in public policy.

He established a number of “nonpolitical” foundation to back libertarian groups, including the Law & Economics Center (George Mason University), the Cato Institute, the Mercatus Center and the American Legislative Exchange Council (ALEC). He’s long been focused on any government efforts that would regulate KI areas of business, including environmental pollution, clean air, and workplace rules.

Koch’s MBM philosophy encouraged “entrepreneurism” that led managers and workers to seek to boost profits no matter the consequences. As Leonard explains regarding an environmental failure at the Pine Bend refinery, “Koch’s management team felt that the state had no right to know what happened inside the fence line of Kock’s properties. Managers obeyed a code of silence to maintain this wall round Koch operations.” He reveals how this shared mindset led to an environmental crisis at Pine Bend and a similar one at the Corpus Christie, TX, refinery. The bad publicity and fines led Koch to adhere to environmental regulations conglomerate-wide.

Leonard’s study makes clear that because Koch kept near absolute management control over KI and kept it private, repeatedly refusing to go public, he’s had the flexibility to take significant risks. Some ventures turned out to be very successful, like the acquisition of Farmland fertilizer and entry into oil trading and private equities, but others like California energy pricing and Purina Mills were flops. Because KI remained private, Koch could take the “long view” and did not have to worry about the demands for quarterly returns. To strengthen his overall management hand, Koch made a major commitment to secure as much market intelligence as possible to assess current business risks and new venture possibilities.

One of Leonard’s most illuminating analyses involves how Koch not merely survived but prospered amidst the banking crisis—or Great Recession—of 2008.  He notes that “the bloodletting at Koch [KI], while rapid and unprecedented in size, was mild compared to the rest of the economy.” Koch was deeply opposed to the Obama administration—and the Democratic controlled Congress—bailout of the banks, and the follow-up stimulus plan.

Nevertheless, in the wake of the crisis, KI became a vast corporate superpower.  “The company’s operations touched the daily lives of virtually everyone who use gasoline, wore spandex, lived in a home with gypsum-paneled walls, swaddled their children in diapers, and counted on the heat to come on when they adjusted their thermostat,” notes Leonard.  “Koch Industries had a hand in all of it.”

Such wealth and power led Koch and KI to seek ever-greater political influence.   Together with Exxon, KI spent millions opposing the notions of climate change and global warming. It funded a grassroots group, Americans for Prosperity, to oppose proposed “cap-and-trade’ legislation and the Waxman-Markey law.  Aligned with the Republican Tea Party coalition, Koch forces help to undo Democratic Party control of Congress and helped contain the Obama presidency with regard to health care and banking regulations.

Under Pres. Trump, Koch’s interested are promoted by VP Mike Pence, a conservative politician long backed by Americans for Prosperity. KI also supported by the Republican’s Freedom Caucus, a group that Leonard notes KI bankrolled. However, when Republicans challenged KI interests, as with the proposed Border Adjustment Tax (BAT), the company and its lobbyists promoted more favorable Republicans—and succeeded in killing the proposed act.

Kochland’s overarching theme of how Charles Koch and Koch Industries navigated the profound changes in the U.S. and global economy over the last quarter century is a revealing, if alarming, tale of how the 1 percenters came to rule American.

Leonard study is exhaustive and engaging, and sometimes overwhelming in terms of the people mentioned and the KI operating units discussed. The author provides a useful appendix with brief bios of major characters. Readers would benefit from an overview roadmap of KI operating units, especially how they changed over time. A similar list of the various nonprofit groups, think tanks, and lobbyists would have been useful.