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Charles Koch, CEO of Koch Industries. (Photo: Koch Industries)
Our latest Freakonomics Radio episode is called “Why Hate the Koch Brothers? (Part 1).” (You can subscribe to the podcast at Apple Podcasts or elsewhere, get the RSS feed, or listen via the media player above.)
Charles Koch, the mega-billionaire CEO of Koch Industries and half of the infamous political machine, sees himself as a classical liberal. So why do most Democrats hate him so much? In a rare series of interviews, he explains his political awakening, his management philosophy and why he supports legislation that goes against his self-interest.
Below is a transcript of the episopde, modified for your reading pleasure. For more information on the people and ideas in the episode, see the links at the bottom of this post. And you’ll find credits for the music in the episode noted within the transcript.
- * *
If I asked you to name a very famous, generally down-to-earth Midwestern billionaire — that’s easy, right?
Clip from the University of Georgia: Would you please give a very warm welcome to the oracle of Omaha, Warren Buffett.
No, not that famous Midwestern billionaire. This one:
Charles KOCH: My name is Charles Koch and I’m chairman and CEO of Koch Industries.
He’s also one-half of the controversial entity known as the Koch brothers:
Harry REID in a clip from his site: The Koch brothers are trying to buy America.
Bernie SANDERS in a clip from The Reid Report: They are, the Koch brothers, helping to lead the war against working families in this country.
He must have seen this coming, right?
KOCH: Look, I knew it would be nasty and unpleasant. I didn’t know it would be this dishonest.
Charles Koch isn’t much of a media fixture. But over the course of several weeks, he sat down with Freakonomics Radio for a series of conversations. He discussed what his critics say about him…
KOCH: Most of the facts that I’m familiar with are wrong.
How he first came to see modern politics as corrupt…
KOCH: My first real brush with this was in 1972, when Nixon was campaigning.
And why he’s so worried about America’s future:
KOCH: We’re increasingly headed, under both Republicans and Democrats, toward a system of control, dependency, cronyism, pitting individuals and groups against each other and destroying opportunity and progress.
He talked about the political issues of the day:
KOCH: I would let anybody in who will make the country better, and no one who will make it worse. That would be the same of people who are here illegally… I’m not in favor of people doing drugs. On the other hand, extreme criminalization hasn’t worked .. Obviously, if the temperature continues to go up, at some point it can be harmful or are even very harmful.
We ask the questions we know you’re thinking …
Stephen J. DUBNER: Now the public line on you is that, “Everything that Charles Koch or the Koch Brothers advocate societally or politically is just an effort to protect or extend their business interests.” Make your best case how and why that’s not so.
KOCH: We opposed extenders, the tax bill, which are tax exemptions. And we make a lot of money from those. We opposed this border-adjustment fee that would make us over a billion dollars a year. Do you want me to go on?
We hear praise from some unlikely quarters:
President Barack OBAMA in a clip from the White House: You’ve got the N.A.A.C.P. and the Koch brothers. No, you’ve got to give them credit. You got to call it like you see it.
And: we get to what kind of person Charles Koch really is:
DUBNER: I have to say — and I say this with the utmost respect — you’re a total nerd, aren’t you?
KOCH: No! What? I’m a fun-loving guy. I was a rugby player. You kidding me?
- * *
Charles Koch lives in Wichita, Kansas, which is where he grew up. He’s got a wife of many years and two grown kids — a daughter who’s a writer and book publisher; and a son, in Wichita, who is president of Koch Agronomics Services. Charles Koch was born in 1935, the second of four boys. His brother David lives in New York; he’s also involved in Koch Industries, though less so than Charles; and he’s the other half of the so-called Koch Brothers political-funding machine. The other two brothers aren’t involved in either politics or Koch Industries — a reflection of decades of legal combat. If you like really nasty family feuds that last for decades and involve billion-dollar settlements, you might want to read a book called Sons of Wichita: How the Koch Brothers Became America’s Most Powerful and Private Dynasty.
Koch Industries today, meanwhile, is the second-largest private firm in the U.S., after Cargill. It was started by Charles Koch’s father, as an oil and engineering firm. Now it’s one of the biggest industrial conglomerates in the world, with 120,000 employees. It deals in everything from chemicals and electronics to paper products and textiles. Some of its best-known brands: Georgia Pacific, Lycra and Stainmaster carpeting. Its annual revenues are estimated at about $100 billion. Charles and David Koch are estimated to be worth nearly $50 billion apiece. Charles, in case you’re wondering, has no interest in retiring.
KOCH: If I did that I’d be dead in six months.
DUBNER: Briefly tell me what you actually do in a given day.
KOCH: Well, I get to work at 7 or a little before. I meet with customers, with employees. I go over projects, opportunities, and problems. I gather information from all different sources. I’m very strong on driving innovation, creative destruction and making sure we have a learning organization and an innovative one.
Koch Industries has been a gargantuan business success. But that’s not what made Charles Koch famous. That happened much more recently, when he intensified his funding of political and social causes, and political campaigns. Because he has funded almost exclusively Republican candidates, and causes typically associated with Republicans, he is — at least in the eyes of most Democrats — an obvious enemy, a George Soros of the right. But he and his brother David have become more than just an enemy; they’re seen as a bête noire, plying the radical right with so-called “dark money” — that, in fact, is the name of the journalist Jane Mayer’s exposé on the Koch brothers.
Jane MAYER in a clip from Democracy Now!: They’ve gathered around them a group of 400 to 450 other phenomenally rich and influential American conservatives. And it’s given them the equivalent of a private plutocratic political party.
So let’s try to untangle the rhetoric and the reality. And try to figure out if Charles Koch’s views are as doctrinaire as they’re sometimes portrayed or perhaps a bit more nuanced. To understand his views — on politics and society and business — it probably helps to understand where they come from. Starting with … his father. Fred Koch had studied engineering at M.I.T. …
KOCH: And he was tough. He was Dutch and his favorite saying was, “You can tell the Dutch, but you can’t tell him much.”
In the 1920s, Fred Koch had a small oil-refining firm that he was trying to grow into a big one. He aggressively challenged the industry leader — which, in turn, sued Koch for copying its technology. Eventually, he would lose in court. In the meantime, he looked for business overseas — and made his first millions building oil-refining facilities in Stalin’s Soviet Union. Which he hated — the statism and collectivism, the cronyism and corruption. “What I saw in Russia,” Fred Koch later wrote, “convinced me that communism was the most evil force the world has ever seen and I must do everything in my power to fight it.” Back home, he helped start the John Birch Society, which took anti-communism to the point of nativism and racism.
[MUSIC: “Policia At My Front Door”]
Koch also learned that the lawsuit he lost had been rigged: the opponent bought off a judge. From this one pair of events in Fred Koch’s life — getting shut down by a crooked competitor and working under the direction of a communist dictator — you can see the entire blueprint for Charles Koch’s view of the world. The enemies: cronyism, special interests and intrusive government. The solutions?
KOCH: What my vision for a good society is what we call a free and open society. Liberated people can do amazing things. They’re productive, innovative and entrepreneurial. People who are subjugated — intimidated, controlled or dependent — tend not to be.
Charles Koch hadn’t planned on joining his father’s business.
KOCH: He was always tough on me as a kid so I figured I didn’t need to go back through that again.
Like his father, Charles studied engineering at M.I.T.
KOCH: After I finished at M.I.T. I went to work for Arthur D. Little, a consulting firm. After I’d been there for two years or so, my father called me and wanted me to join the firm. I turned him down and so then …
DUBNER: You were not crazy about going back to Wichita at that point, yes?
KOCH: Right. I was learning a lot, having a great time, playing rugby and living in Boston; a lot of great girls’ schools and wonderful girls to date back there. I wasn’t that eager to come back. Then he called me and he said, “Son, my health is poor.” His blood pressure was 230 over 120, if you can imagine. They didn’t have the drugs then, of course, to treat it. He said “I don’t have long to live. Either you come back to run the company or I’m going to sell it.”
Koch agreed to come back to Wichita to take over a small equipment division called Koch Engineering.
KOCH: And so that worked great. Then, he turned over the other areas to me. But he lived longer than he thought he’d live, six years, and I got to work with him for six years.
After his father died, Koch planned the firm’s future.
KOCH: I wanted to build the businesses we had. My view, as it still is, is that the way to succeed is to understand what capabilities you have to create superior value, find the best opportunities for them and then constantly improve those capabilities; add new ones, which will open new opportunities for you. That’s been our vision and our approach ever since. We’ve just kept building capabilities, adding new ones, finding new opportunities which gave us additional capabilities and so on.
DUBNER: When I look at Koch Industries’ employee satisfaction ratings, which you can look up these days, the firm does quite well. But in terms of the CEO ratings — that’s you, you do really well. You’ve got a 92 percent approval rating. Now, I have no idea who is writing these. Maybe this is and your wife writing all the reviews.
KOCH: No I haven’t. The first I’ve heard of it. Well, good. I wouldn’t rate myself quite so high, but somebody has that belief.
DUBNER: If someone in business, starting out, asks you for some structural basic advice of running a firm — managing people, juggling it all — what would you tell them?
KOCH: The first thing is to understand what your innate abilities are, what you have a passion for and you’re really willing to work hard at. Then, think through how that translates into how you create value for others, because that’s going to determine how successful you are, what life you have [and] how fulfilled you are. In an organization, you need to create value, first of all, for your customers. Then you need to create value for your employees and partners. Then you need to create value for society at large.
DUBNER: What excites you about the business still? You’re in your early 80s. What keeps you coming into the office every day? You’re one of the 10 richest people on the planet, so presumably you don’t need more money.
KOCH: Well, I love it. What I love is innovation, finding new ways to create value. Improving. I believe everything we’re doing can be done much better and will be over time. That’s what keeps me turned on. Plus: helping our people transform themselves, become lifelong learners and constantly learning how to create more value.
If you’ve been listening to Freakonomics Radio for a while, Koch’s management philosophy may sound familiar. It’s built on a lifetime of reading economics and other social sciences.
KOCH: Starting at MIT, I became fascinated with scientific progress, the philosophy of science, the scientific method. Then I became fascinated with social progress, as well as scientific. I started studying economics, psychology, sociology and general philosophy. And then, applying the principles I learned in the business. That’s what ultimately led to our management philosophy, which is what we call market-based management.
DUBNER: For someone who’s never heard of it, let’s just start with your brief description of market-based management.
KOCH: Okay. Market-based management has five dimensions: vision, virtue and talents, knowledge processes, decision rights and incentives. When you put that together in an integrated package, it gives leaders and everybody in the company a toolkit to solve problems and capture opportunities. A critical part of our management philosophy is building what we call a ‘challenge culture.’ We find that’s one of the biggest problems in acquisitions we make. In many of them, if you challenge your boss, it really hurts your career. Here, if you don’t challenge your boss — not to show how smart you are or be clever, but because you see a problem in what’s being done or you have a better idea — if you don’t challenge, you’re not really doing your job.
If you’re here as a leader at any level and your people aren’t challenging you, you’re obviously not a good leader because they’re intimidated, you haven’t encouraged them, you haven’t rewarded them, they’re afraid they’ll be put down or look stupid.
DUBNER: Do you ever worry that strong decision rights will tip into, not quite anarchy, but a too-decentralized management mechanism where individual managers may have such autonomy or such strong decision rights that they will turn into mini dictators?
KOCH: Right. That is absolutely a danger. Many companies, they’ll get centralized and they’ll find that’s not working, so they get decentralized. The way we look at it is that certain things need to be centralized. That is, the people at the center have better knowledge of the effect of something on the other businesses, how that fits the overall strategy or our market trends than the people at the plant. But there are other things that the people at the plant have better knowledge. It’s the division of labor by comparative advantage. We are very centralized on some things and very decentralized on others. Is it perfect and does it always work great? No. But it’s a constant balance, reworking and trial and error.
DUBNER: I’d like to talk about incentives for a little bit, because as you and I know that’s the cornerstone of economic thinking. Because of the way that incentives work at your firm, a given employee can start making more money than his or her manager. I’m curious how people respond to that. Does that create turmoil?
KOCH: Well, I’m not into their psyche. But let me just say it works great. It does. Look at basketball: does the coach quit because LeBron James makes more? He says, “LeBron, go for it because you’re making me look good. Keep it up and I hope you make five times what I do.” That’s the culture we try to build here.
DUBNER: From what you’re telling me now and from what I’ve read, it sounds as if market-based management — the operating system of your business — is pretty similar to what you, Charles Koch, would like to be the operating system for society at large: a structured, principled environment that encourages self-determination and so on. But surely it’s a lot harder to create or impose this framework on society than on a private firm, yes?
KOCH: I know what you’re driving at. The answer is yes, but not structured. I want a system of spontaneous … What I want, my ideal — if the world were ready for it — is to truly have a society that represented the principles in the Declaration of Independence. That is: everyone is created equal with certain inalienable rights and governments are instituted to secure those rights. Then I look at the four core institutions in society — education, communities, business and government — and determine, “What is the ideal for each of these types of institutions that will help move us in that direction?”
DUBNER: Back in the 1960s, long before you were involved politically as you are now, you argued that the role of government in the capitalist system at least should be, “only to keep a check on those who might attempt to interfere with the laws of supply and demand.” I’m curious to hear how deeply you truly believed that then — that the role should be limited — and how you feel about it now.
KOCH: Right. Well, I’ve matured a little bit, being 81. You would hope, finally. I look at government. What is government? I like Max Weber’s definition of government the best. It’s most helpful to me. That is: government is the social institution with a legal monopoly on force in a given geographic area. The nature of government is force. I believe that government should act when force works better than voluntary cooperation and competition. The starting point on things it does is use force when force is inherent in it, like to protect the country from foreign invasion. Police try to protect people from being robbed and killed. But there needs to be a social safety net. Then the question is, “What is the optimum social safety net and how would that work?
DUBNER: I have to say — and I say this with the utmost respect — you’re a total nerd, aren’t you?
KOCH: No! What? I’m a fun-loving guy. Hey, I was a rugby player. You kidding me? But yeah, I’m a nerd.
DUBNER: Now, for many years you avoided politics and then you stopped avoiding it. Why? What changed?
KOCH: Well, it was during the Bush administration. I started in giving kids scholarship who were interested in self-transformation and self-development — along the lines we’ve been talking — and then supporting professors as they heard about what I was interested in and so on. Then, [I] got into, “We need to flesh out the policy implications of these ideas.” And then get into, “Now we have a lot of people who are interested in them. We need to help them mobilize to get this stuff done.” Then George Bush, 43, was elected. It looked like he was going to advance some of these ideas. Then he went the other way. Under him, the federal government grew 50 percent more than it did under Clinton and roughly three times the number of restrictive regulations were passed under him. We got in disastrous wars and just one thing after the other.
So I said, “We’ve got to have people who don’t just campaign on these ideas but who really believe them. We’ll support those who advance these ideas.” That’s how it got started.
Coming up on Freakonomics Radio: once he got started, the reach got broader and broader.
KOCH: We’ve had a number of successes and lot of failures with the Obama administration.
That’s coming up, right after this break.
- * *
DUBNER: Good morning, it’s Stephen Dubner. Charles, how are you?
KOCH: Hey, great. How are you doing, Stephen?
We’ve been speaking with Charles Koch, CEO of Koch Industries but, much more famously, one of the men behind a massive funding operation designed to blow up what Koch sees as the political status quo.
DUBNER: Let me ask you this — and I don’t mean to sound skeptical or snarky — but why do you care personally so much about shaping society at large? Most people — I’m guessing 99 and a half percent of the people listening to us talk — don’t know anyone that’s anywhere near as wealthy, as accomplished and powerful as you. A natural inclination is to say, “That person just wants to exert the power for ego gratification, for further enjoyment or maybe for further magnifying his own wealth and power. Persuade me that those are not the motivations and that your desired social engineering is for the greater good.
KOCH: We fought a revolution to get rid of royalty and we don’t need royalty here. It’s seeping back in in different forms. But basically I was blessed starting at an early age to have learned certain principles, concepts and values that transformed my life and enabled me to accomplish more than I ever dreamed possible. Since that time I wanted to give as many people the opportunity to do the same. That is: to develop their full potential and become lifelong learners and lead successful fulfilling lives. Now, when somebody gets that thought in their mind and that’s what they’re thinking about every day, that affects their whole approach to life. They think, “I want to do that in my family. I want to do that in my communities.”
It changes their mental models. It changes the way their brain is hard-wired. That’s what we find in all our work in education and everything. I have seen these ideas transform thousands of people. So they lead better lives, as Frederick Douglass did once he got these ideas. He didn’t just fight to free other slaves. He fought for women’s rights, for immigrants’ rights, for persecuted religious minorities’ rights. That’s what we see. That’s what I want. I want the people to be liberated. I don’t want to control them.
DUBNER: But why do you care so much?
KOCH: Because it transformed my life. I [would] love to see it transform other people’s lives. Because if you have a success and you feel good about it, then you want more of that. That’s what I get. You could say it’s like a drug. But I hope it’s a drug that makes me work for good, not for ill.
The list of charitable causes supported by Charles Koch, and his brother David, is long and diverse, and would surely find approval with even their most devout political enemies. David is particularly well-known in New York for funding the arts and medical research. Among the Koch Industries beneficiaries are the United Negro College Fund; Project JumpStart, which provides construction training; and the movement for criminal-justice reform.
KOCH: Like everything else, we need a legal system that is just, where the punishment fits the crime. We also need a system that, if people make a mistake, [they] learn from their mistake. They need to have a second chance rather than ruin their lives. Now it is a tough sell because people believe, “God, you’re going to let all the criminals out. We’re going to be less safe.” No, the idea is to make people more safe. When you have draconian penalties, penalties that don’t fit the crime, then the police are about to arrest somebody, for, let’s say, selling marijuana. You may have a gun in your car because you’re afraid of being attacked. What is somebody going to do when they’re going to be arrested? They don’t have the attitude that, “Gosh, I’m going to get a penalty but I’ll be all right.”
It’s going to ruin their lives. What did they do? They fight back or run and then they get shot. The whole thing escalates.
This project aligned Koch with the Obama White House — a fact President Obama noted when he spoke to the N.A.A.C.P. in 2015 about sentencing reform:
President OBAMA in a clip from the White House: This is a cause that’s bringing people in both houses of Congress together. It’s created some unlikely bedfellows. You’ve got Van Jones and Newt Gingrich. You’ve got Americans for Tax Reform and the A.C.L.U. You’ve got the N.A.A.C.P. and the Koch brothers. No, you’ve got to give them credit. You’ve got to call it like you see it.
That said, in a 2016 New Yorker piece by Jane Mayer, the former Obama advisor David Axelrod is quoted as belittling the Kochs’ efforts. “It’s all part of a very well-conceived strategy to change the image of the Koch brothers as dark and plotting oilmen ideologues,” he said. The standard argument from the left is that whatever social good the Kochs may be doing, it’s massively outweighed by their political support. For instance: critics say that some of the criminal-justice reform legislation the Kochs support would also make it harder to punish corporations like theirs for environmental or safety violations. But also, there’s just the sheer volume of money they disburse, much of it from anonymous donors — thus the “dark money” label that inevitably travels with the “Koch Brothers” label.
For years, they’ve funded think tanks and university researchers who tend to explore their libertarian notions. They’ve contributed to the American Legislative Executive Council, which drafts model legislation for individual states on issues like school choice, and tax and regulatory reform. And the Kochs fund politicians, through organs like Americans for Prosperity and the Freedom Partners Action Fund. They spent a reported $250 million during the 2016 election cycle, even though they famously didn’t support either of the main presidential candidates. They’ve declared their intention to spend between $300 and $400 million dollars in 2018. Their political operation employs about 1,200 people in more than 100 offices across the country — which, as Politico noted, makes it far bigger than the Republican National Committee itself.
So how, and why, did Charles Koch come to be such a huge political player? As he tells it, the genesis goes back decades, and is firmly rooted in ideological principles.
KOCH: I tried to read and meet people who would give me ideas, expose me to principles that I could apply in all aspects of my life: business, social community and in the societal realm. As I did this, it became clear to me that virtually every human being has the ability to learn, develop, contribute and succeed if they are given the freedom and opportunity to do so. Then I learned that when ideas of individual rights and equal rights started to come into being — in Holland first, spread to England, in the United States, even France and other countries, particularly in Europe — that it liberated the average person. And as they were liberated, then they started working to develop themselves, to better themselves. In the process they made themselves rich, relatively, and then made everybody else rich.
The first steps were giving out scholarships, setting up think tanks, and funding like-minded academics. But that wasn’t fully satisfying.
KOCH: It became obvious that we had a society and a political system largely governed to satisfy special interests and parties had formed around those special interests, which George Washington worried about. As you know, he warned us that if the politics become an extension of parties that we will lose a lot of the promise and hope for the country because parties become an end in themselves, in advancing them and their supporters and special interests. My first real brush with this was, I think, in 1972 when Nixon was campaigning. And he had a committee to re-elect the president and he sent them around to companies to strong-arm them for a million dollars or so, which was illegal, to support his campaign. And so they approached me and I wouldn’t have any part of it.
And then, my next politically-related involvement happened in the late ‘70s as I saw this cronyism, this corporate welfare, really getting more and more entrenched and leading more and more to a two-tiered society.
By “two-tiered society,” Koch means the political and other elites who try to shape society and everyone else. Koch knows he’s firmly in the top tier. But he still dislikes that blatant division. And so…
KOCH: I formed something called the Council for a Competitive Economy and the idea was to build an organization of business leaders who would oppose all forms of subsidy and corporate welfare, even and especially when they benefited that company. I have Milton Friedman to be chairman of my board of advisors. I sent a letter to hundreds of business people with his name. I got a lot of answers back, but they were typically along the same theme: they agreed in principle that we need to get rid of all the special dealing and rigging the system and everybody will be better off. But it doesn’t work for their industry. They need to be protected or they’ll go out of business and that will hurt the country. And over and over again. We said, “My God.”
I approached Rich Fink, who was a professor at George Mason, to come and run this. Maybe he could make it successful. “No,” he said. “You can’t depend on business people. They’re too short-term-oriented, particularly public companies. They’re going for the quick buck rather than what’s good for themselves and the country long-term. We’ve got to go to the citizens who are suffering from this.” So he joined me and we set up something called Citizens for a Sound Economy. And our first real success in that was in the Clinton years, we stopped — not by ourselves, but with others — the B.T.U. tax and Hillarycare.
The B.T.U. tax sought to curb pollution from carbon-based fuels and other energy sources; Hillarycare was a proposal for universal health care promoted by then-first lady Hillary Clinton — a precursor to ObamaCare, which Koch would also oppose. In any case — as Koch noted, he was among those who pushed to defeat the so-called Hillarycare and the B.T.U. tax.
KOCH: And that changed the direction of the Clinton administration. You remember, [President Clinton] said, “The era of big government was over.” And when Bush 43 won, we thought, “Oh my. There might be some hope in having a principled administration, one who would take it in the direction we were urging. And boy, was that an eye-opener because, in fact — although he meant well — President Bush did the opposite. They increased the size of government 50 percent more than Clinton passed, almost three times the number of restrictive regulations including things like McCain-Feingold, Sarbanes-Oxley, then drug subsidies, No Child Left Behind — which, in our view, took education in the wrong direction — increase in steel tariffs, getting involved in counterproductive wars for the wrong reasons.
He even appointed Harriet Miers to be a Supreme Court Justice and, fortunately, we and others were able to stop that.
Miers had never been a judge. She was Bush’s White House counsel, his former personal lawyer and a family friend. To Koch, the fact that her name was even put forward showed how deeply Washington was ruled by cronyism.
KOCH: Then we got set up to become more effective, to elect better people, to hold them accountable for what they ran on and to constantly encourage them to move us toward a system of mutual benefit rather than increasingly toward a two-tiered society. We had a number of successes and lot of failures with the Obama administration. But where we had the best successes were at the state level.
DUBNER: Now, your description of that involvement sounds, to my ear at least, as sincere, considered and informed. And yet, obviously, you’re a smart enough guy to know and you don’t even have to be that smart to know that your name alone, along with your brother David, as the Koch brothers, is — and I don’t think I’m exaggerating here — essentially a curse word in many precincts. A couple easy examples: Jane Mayer — the journalist, one of the leaders of the anti-Koch movement — in her book, Dark Money, blames you for fueling, “The rise of the radical right.” Harry Reid, former Senate Majority Leader, said you were trying to buy America. There’s the UnKoch My Campus movement to get rid of Koch money that goes to fund academic researchers.
How do you feel about having earned that reputation? You plainly didn’t get involved in this stuff in order to become public enemy number one.
KOCH: No, but look: we’re trying to go back to the principles on which this country was founded. That is, everyone is created equal with certain inalienable rights and governments are instituted to secure those rights and to liberate the people so we can have human flourishing in this country. The only way we’re going to do that is to take away the power from those who are rigging the system for special interests. Now, when you threaten special interests, you are public enemy number one. It’s been nasty and unpleasant. As a matter of fact it’s more … Look, I knew it would be nasty and unpleasant. I didn’t know it would be this dishonest, although from all my study of history and so on, I should have known. But this is threatening stuff. I haven’t read Jane Mayer’s book, but people have asked me about various pieces and there are some facts right.
Most of the facts that I’m familiar with are wrong. This is why you prefer to stay away from politics. It’s such a nasty game.
DUBNER: In retrospect, Charles, do you regret getting involved with the political stuff?
KOCH: I was a little like Martin Luther on trial where he said, “Here I stand. I can do no other.” DUBNER: I’m curious: do you vote regularly?
KOCH: Yes. Back in the day, I didn’t. I was too disgusted with it. But if I’m going to invest all this time and money in this area, I at least have to vote.
DUBNER: When’s the last time you voted for a Democrat?
KOCH: Probably 10 years, I guess.
DUBNER: Do you remember who it was?
KOCH: No. No I don’t. We’ve supported a number in the past. I would support a Democrat just as soon as a Republican. I’m interested in the principles and the policies. I don’t care what the label is, I care what the policies are. Are they going to help people improve their lives or make their lives worse?
But the fact is that the vast majority of candidates he’s supported have been Republicans — many of whom have campaigned and governed on platforms that contradict Koch’s more liberal-leaning initiatives. So you can see why critics are skeptical that his intentions are as pro-social as he might communicate. You can also see that Charles Koch has a lot to say, and he’s not afraid to say it. In fact he had far too much to say for one episode — so we’ll put out the rest in a special bonus episode. You won’t have to wait a full week for it — just 24 hours. You’ll hear Koch argue that a lot of the legislation he’s pushing for goes against his company’s self-interest:
KOCH: There are roughly a trillion and a half special exemptions in the tax code we benefit tremendously from. We’d get rid of all of them.
That’s next time, in a special bonus episode of Freakonomics Radio.
Freakonomics Radio is produced by WNYC Studios and Dubner Productions. This episode was produced by Shelley Lewis. Our staff also includes Stephanie Tam, Christopher Werth, Merritt Jacob, Greg Rosalsky, Eliza Lambert, Alison Hockenberry, Emma Morgenstern, Harry Huggins and Brian Gutierrez; the music you hear throughout the episode was composed by Luis Guerra. We had technical assistance in Wichita from Torin Andersen and Jon Cyphers, and we also had help this week from Sam Bair. You can subscribe to Freakonomics Radio on Apple Podcasts, Stitcher, or wherever you get your podcasts.
Here’s where you can learn more about the people and ideas in this episode:
Charles Koch, co-owner, chairman of the board and CEO of Koch Industries.
“Charles Koch: ‘I Don’t Like Politics’,” Kai Ryssdal and Tommy Andres, Marketplace (October 22, 2015).
“Charles Koch: Why I Didn’t Try to Stop Donald Trump,” Alexander Mallin and Jonathan Karl, This Week – ABC News (April 24, 2016).
“Covert Operations,” Jane Mayer, The New Yorker (August 30, 2010).
Dark Money: The Hidden History of the Billionaires Behind the Rise of the Radical Right by Jane Mayer (Anchor, 2017).
“Full Transcript of Charles Koch’s Interview with Fortune,” Fortune (July 12, 2016).
Good Profit: How Creating Value for Others Built One of the World’s Most Successful Companies by Charles Koch (Crown Business, 2015).
“How the Koch Network Rivals the GOP,” Kenneth Vogel, Politico (December 30th, 2015).
““I Don’t Like the Idea of Capitalism”: Charles Koch, Unfiltered,” Jim Tankersley, The Washington Post (August 1, 2016).
“The Kochs’ Quest to Save America,” by Bill Wilson and Roy Wenzl, Wichita Eagle (October 13, 2012).
“Quixotic ‘80 Campaign Gave Birth to Kochs’ Powerful Network,” Nicholas Confessore, The New York Times (May 17, 2014).
The Science of Success: How Market-Based Management Built the World’s Largest Private Company by Charles Koch (Wiley, 2007).
Sons of Wichita: How the Koch Brothers Became America’s Most Powerful and Private Dynasty by Daniel Schulman (Grand Central Publishing, 2014).
DUBNER: I’d like to hear your thumbnail views on a broad spectrum of issues. Charles, what are your views on immigration?
KOCH: My views on immigration are the same as they are on any imports of goods and services, not just people. I would let anybody in who will make the country better and no one who will make that worse. That would be the same thing of people who are here illegally. If you’re here, gainfully employed, and adding value in society then you ought to stay. If you’re not contributing — and particularly if you’re creating trouble, making people’s lives worse — you need to be sent out of the country.
DUBNER: Now, to say that you’ve let in anybody who will make the country better, that could be construed — I would argue, pretty easily — as essentially a vote for open borders. Do you go that far?
KOCH: No, there needs to be screening, particularly with a giant welfare state that we have. You don’t want people [to] come here, just go on welfare and drain resources. You want people who’re going to come here, get a job, work, obey the law, be good citizens and contribute. There needs to be screening for that. Exactly how to do that and what’s effective, I haven’t gotten in the detail enough to know. Then on imports, I would let in every import except those that are dangerous like poison gas, bombs, atomic bombs and stuff. Keep all that stuff out. But all the goods and services that are cheaper, better quality that Americans want to buy, I’d let them in because it makes Americans better off and it increases innovation, just as the Japanese imports caused our auto companies to come into the 20th century.
DUBNER: Now, a lot of people who hear that argument — that essentially unfettered free trade argument — we want goods and services to move freely without friction and let the market set the lowest price so that more people can enjoy stuff. That argument felt a lot better to a lot of people 10 years ago. But now there’s a lot of backlash against globalization generally for depressing employment and wages here. Have you not lost any enthusiasm for globalization?
KOCH: As I say, I’m against special interest, corporate welfare and import tariffs. Blocking imports are corporate welfare. You’re saying to the American people, “You don’t have the right to buy a better product, higher quality, more advanced or cheaper because it’s made in Japan.” As opposed to, “It’s made in Montana because we [have] got to protect it.” It’s like the sugar growers. We got, what, a few hundred sugar growers? And we subsidize them and protect them from foreign competition. It raises the costs of foodstuff for everybody. That isn’t going to affect my life. But that hurts some people who don’t have very much.
DUBNER: Charles, what is your thumbnail view on drug decriminalization and/or the war on drugs?
KOCH: As I forget who said, “We fought the war on drugs and we’ve lost.” People say, “God, look at people doing these drugs. It’s terrible. We’ve got to stop them.” Well, part of the terrible part is because we’ve tried to stop them. It’s just like prohibition. They tried that and what [it] did that put gangs and criminals in charge of alcohol and created a crime wave. Well, the same thing is true here. I’m not an advocate of drugs. I don’t do drugs. Never have. I’m not in favor of people doing drugs. On the other hand, this extreme criminalization hasn’t worked. Matter of fact, it’s ruined a lot of lives by turning people who really didn’t do much wrong into lifelong criminals.
DUBNER: Talk a minute about criminal-justice reform or what you would even call reform within the realm of criminal justice.
KOCH: Like everything else, we need a legal system that is just, where the punishment fits the crime. And we also need a system that, if people make a mistake, learn from their mistake. They need to have a second chance rather than ruin their lives.
DUBNER: Let me ask you about climate change — causes and consequences.
KOCH: There are natural causes and then there are causes due to increase in greenhouse gases, such as CO2, being the biggest one. Not the most potent one, but the biggest one. So far, unlike the projections, it has not created catastrophes. But obviously, if the temperature continues to go up, at some point it can be harmful or even very harmful. But the question is, “What do we do about it, about whatever risk there is?” And to me, the answer is innovation. These policies that the U.S. government has, others have proposed or promulgated have been just symbolic. They have made essentially no difference. The EPA has said this. We oppose all of these because they end up being cronyism. They end up helping certain wealthy people to the disadvantaged of the less fortunate.
DUBNER: What would you propose instead, if you were setting that policy?
KOCH: I would go to permission-less innovation. This is part of this whole theory of liberation [that] allows everybody to become rich. We need to liberate innovation, entrepreneurship, and productivity. We see that a lot of progress has been made in solar. There are also huge improvements in energy efficiency and in natural gas replacing coal due to innovations. You look at all the progress in having less greenhouse gases and it’s due to innovation, not regulation. As a matter of fact, [when] they blocked the Keystone pipeline. I was going to send them a thank you letter because that was saving us $750,000 dollars a day in crude costs. Maybe that’s not a lot of money. It’s a lot of money to us.
DUBNER: Wait, I don’t understand. How is that saving you that money?
KOCH: Because we have a refinery in Minnesota that runs on Canadian crude. Now, the marginal buyer’s on the Gulf Coast and it’s railed down there. If they build a pipeline, it will be shipped down there three dollars a barrel cheaper.
DUBNER: So the pipeline is, would be bad for your business. What was your public position on that or the Koch Industries …
KOCH: We were in favor of the pipeline.
DUBNER: Because why? Explain.
KOCH: We have a luxury of being a private company and can act on principle. No one, or a lot of people don’t agree with our principles. But what we believe [in] are principles that will make people’s lives better and that’s the way we evaluate everything. Every position is to get rid of cronyism, corporate welfare and to liberate the people.
DUBNER: Now the public line on you, however, is that, “Everything that Charles Koch or the Koch brothers advocate societally or politically is just an effort to protect or extend their business interests.” You’re giving an example right now that runs purely contra to that argument. Make your best case how and why that’s not so.
KOCH: Okay. We opposed extenders, the tax bill, which are our tax exemptions, cronyist things that have been passed at the end of every year. They do it year to year so it doesn’t count in their longer-term deficits. And we make a lot of money from those, because they benefit us tremendously. But we’ve opposed those. We oppose all import tariffs. We opposed this border adjustment fee in Congress’s tax bill that would make us over a billion dollars a year. There are roughly a trillion and a half special exemptions in the tax code. We benefit tremendously from them. We’d get rid of all of them.
KOCH: So to get rid of these special deals for special interests … It’s a cancer on our society. Supposedly all the cronyism is — different estimates — out of a $15 trillion economy is costing the economy, making it less efficient by four to five trillion. 30 to 40 percent. You just think what growth and productivity we would have. Plus then you would open it up for entrepreneurs, new competition, new ideas, new innovations. Another huge contributor to this problem is this occupational licensure. It’s not just big business. Locales and states require all of this testing, schooling, fees and stuff for people who start with nothing. They say it’s safety. Oh yeah, that’s right. Hair braiding. You need fifteen hundred hours of schooling. This is absurd.
DUBNER: Now, I think a lot of people listening to you talk, especially on certain issues — immigration, even the way you talked about climate change, drug decriminalization, criminal-justice reform — even a lot of Democrats, even progressives hearing that, a lot of what you’re saying would sound pretty palatable to them on the topics, on the issues. And yet, if you were to ask most Democrats or progressives to name their number-one enemy, it’s probably you and your brother David. In your mind, why is that? You plainly feel as if you’re sending a series of messages and acting on a series of beliefs that you feel are really valuable. And yet even to those who, in your mind, would benefit greatly from them — which is to say everybody, I guess, the way you describe it — you’re cast as …
KOCH: Well, not everybody. The special interests would be less able to exploit everybody else.
DUBNER: Well, that said…
KOCH: But we find people, Democrats from all over who will work with us. We worked with the Obama administration, particularly on criminal-justice reform, also on occupational licensure. We work with a number of Democratic governors on occupational licensure. But, I’ll tell you these special interests are so strong.
DUBNER: Are you suggesting that it’s the special interests, then, who drive the Democratic, progressive and even journalistic agendas — like Jane Mayer at The New Yorker — to paint your endeavors as evil? Or is this something that’s arrived at more organically?
KOCH: Well, it’s both. It all starts with the belief that virtually everybody is capable of learning, contributing and leading a successful life if they’re given the freedom and opportunity to do so. I would reform the education system, communities, business and government to better enable that to come about. Now, if you believe, as, for example, Hillary does, that those in power are so much smarter and have better information than those of us great unwashed out here have, that we’re either too evil or too stupid to run our own lives and those in power are much better — have what Hayek called the fatal conceit and William Easterly called the tyranny of experts — that they can run it for us.
And when Hillary was pushing Hillarycare, she said as much — that if people are left to decide their own healthcare, they won’t spend enough and so the government needs to do it. Besides, the government will do it better. That is a great divide.
DUBNER: When we talk about the reforms that you would propose, I’m curious: isn’t it a little hubristic to assume that you do know what’s best for society? Persuade me of your level of confidence that if you could reform things as you see fit, that — I’m not saying work 100 percent, nothing’s 100 percent — but it truly would work.
KOCH: Well. I mean, I don’t know, as I said. You asked me about how to do immigration, exactly. No. There’s a principle here. There are basic principles and, as I said, quoting Newton, “If I see further, it’s because I’m standing on the shoulders of giants.” What has worked through history? What, starting in the 17th and 18th century, caused the standard of living — for the first time in history — to explode? Caused the U.S. to be 30 times the per capita income in the whole world, ten times? What, just since 1990, has caused the number of people in extreme poverty to drop from 2 billion to less than 800 million? When you go back through history, it’s through liberation. It’s by applying the principles in the Declaration of Independence — that is, everybody is born equal with certain inalienable rights. Governments are instituted to secure those rights.
If you look at our history as a country, we became the most successful country in the world because we followed those to some extent. Where we violated them have come all of our tragedies and injustices, whether that’s slavery, whether that’s exterminating Native Americans, whether that’s denial of women’s rights, denial of rights to immigrants, particularly groups like the Chinese and the Irish and civil rights. Now, when you say… God, policy. I do not know what detailed policies. But I know enough principles to know what works because they’ve worked universally through history. For example, division of labor by comparative advantage, creative destruction, the rule of law, the benefits of trade. These principles we know, and we know from psychology, that people are not happy when you just give them stuff.
There’s this concept of earned success, what Aristotle called ‘eudemonia.’ That is, you have human flourishing when people fully develop their abilities and use them to do good. It’s what my father called the glorious feeling of accomplishment. There are all these principles that have that have proven true throughout history. You have the same objective, you debate it and you learn from each other. That’s how innovation comes about. That’s part of it, is to not get sucked into hubris. “I got all the answers. I’ve got eternal wisdom and know the exact path for all time.” No. I’m out here experimenting, fumbling around, trial and error to try to find a better way.
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