Money doesn't = Happiness
One of the wealthiest families in America is as enigmatic as its business headquarters. A large black glass building sits above a prairie outside Wichita, Kansas. Like the family's ultra-private firm, the building is a seemingly unpenetrable black box. Furthermore, its design fits the brother's personalities perfectly.
The Koch (pronounced coke) brothers, Charles, David (deceased 2018), and Frederick (died 2020), are well known to be heavy political supporters of the GOP and are in the oil business. However, how they accumulated their wealth and what they do with it has yet to be divulged publicly.
Koch Industries' top-line financial figure is reported at $115B in yearly revenue, as estimated by Forbes. Compared to its peers, it is more significant than IBM, Honda, or Hewlett-Packard and is America's second-largest private company after Cargill. Imagine the amount of wealth this is for a private company: no shareholders to please, no market disruptions, and short sells of your shares. You can do what you want without much pushback.
As a result, the University of Massachusetts Amherst's Political Economy Research Institute states that only three companies rank among the top 30 polluters of America's air, water, and climate: ExxonMobil, American Electric Power, and Koch Industries.
Koch Industries dumps more pollutants into the nation's waterways than General Electric and International Paper combined. The company ranks 13th in the country for toxic air pollution.
Can't You See?
Koch's climate pollution, meanwhile, outpaces oil giants, including Valero, Chevron, and Shell. Across its businesses, the company controls at least four oil refineries, six ethanol plants, a natural-gas-fired power plant, and 4,000 miles of pipeline.
Until recently, Koch refined roughly five percent of the oil burned in America (that percentage is down after it closed a refinery in North Pole, Alaska, owing, in part, to the discovery that a toxic solvent had leaked from the facility, fouling the town's groundwater). From the fossil fuels it refines, Koch also produces billions of pounds of petrochemicals, which, in turn, become the funding for other Koch businesses. In a journey across Koch Industries, what enters as a barrel of West Texas Intermediate oil can exit as a Stainmaster carpet.
What the Frack?
Considering the oil prices today, you may find this information interesting. Koch is now a key player in fracking that's vaulting the United States past Saudi Arabia as the world's top oil producer, even as it's endangering America's groundwater. In 2012, a Koch subsidiary opened a pipeline capable of carrying 250,000 barrels a day of fracked crude from South Texas to Corpus Christi. Koch owns the refinery complex and has announced plans to expand its Texas pipeline operations further.
Additionally, Koch recently bought Frac-Chem, a top provider of hydraulic fracturing chemicals to drillers. The Bush administration's created an anti-regulatory agenda – which Koch Industries helped craft – Frac-Chem's chemical cocktails, injected deep under the nation's aquifers, are almost entirely exempt from the Safe Drinking Water Act.
As a result, Koch Carbon is expanding its Chicago terminal operations to receive up to 11 million tons of petcoke (petroleum) for global export. Recently, the EPA noted the facility had violated the Clean Air Act with petcoke particulates that endanger the health of South Side residents.
How did this Start?
How does a family-owned business get so rich? Based on the information I've shared above, you can see the fuel and products that rely on oil that feeds this business. However, the environment and those who inhabit it have to pay. Yes, the Koch family has paid fines and or helped create legislation to ease or eliminate laws that stand in the way of good business. But how did this family rise to this level of prominence? Read on.
Fred C. Koch, the father of the Koch brothers, was born in 1900 in Quanah, Texas – across the Red River from Oklahoma. He was an innovator who helped revolutionize the oil industry. In 1925, Fred earned a degree in chemical engineering from MIT, partnered with a former Universal engineer named Lewis Winkler, and designed a very close copy of the Universal cracking apparatus. Fred soon landed his first client with the help of family connections to his maternal uncle L.B. Simmons. As a result, Winkler-Koch Engineering Co. had contracts to install its ripoff cracking equipment all over the heartland, undercutting their rival Universal by charging a one-time fee rather than ongoing royalties.
Universal quickly responded by suing in 1929, accusing WinklerKoch of stealing its intellectual property. Fred started looking for partners abroad and found the Soviet Union was looking for a solution to refining 'dirty' oil. Joseph Stalin had just executed his first Five Year Plan. Stalin sought to fund his country's industrialization by selling oil into the lucrative European export market. However, the Soviet Union's dirty oil reserves were hard to refine. The USSR needed Koch's cracking technology, and the Oil Directorate of the Supreme Council of the National Economy took a shining to Winkler-Koch. Koch's competitors were reluctant to do business with totalitarian Communists; he was not that picky.
He is his Father's Child
Meanwhile, Fred's first son Frederick was born in 1933, followed by Charles in 1935 and twins David and Bill in 1940. Fred Koch was a demanding father who controlled everything in his domain. His First-born Frederick was a creative child with a talent for the theater. As a result, Frederick was sent East to boarding school and was all but disappeared from Wichita.
Charles was next, but he had a plan. He forged a deep alliance with David, the more athletic and assertive of the young twins. "I was closer with David because he was better at everything," Charles has said. There is power in numbers, and Charles was not about to face the fate of his older brother Frederick.
Subsequently, a year later, the Supreme Court decided that Fred's cracker, by slight technical differences, did not violate the Universal patent. Fred immediately saw an opportunity to retaliate and countersued on antitrust grounds, arguing that Universal had wielded patents anti-competitively. He'd win a $1.5 million ($16.5M today) settlement in 1952.
Exclusivity
Around that time, Fred had built a domestic oil empire under a new company called Rock Island Oil & Refining, transporting crude from wellheads to refineries by truck or pipe. In those later years, Fred became a significant benefactor and board member of the John Birch Society, an anti-communist organization founded in 1958 by candy magnate and bigot Robert Welch. Bircher publications warned that the communist endgame was the creation of the "Negro Soviet Republic" in the Deep South. Fred's writing described integration as a communist plot to "enslave both the white and black man."
Similar to his father, Charles Koch attended MIT. After graduating in 1959 with two master's degrees in engineering, his father issued an ultimatum: Come back to Wichita, or I'll sell the business. So Charles returned home, immersing himself in his father's world and simultaneously supporting the John Birch Society by opening a Bircher bookstore. The Birchers now had a wealthy participant in young Charles.
But Charles was already under the sway of a charismatic radio personality named Robert LeFevre, founder of the Freedom School, a whites-only libertarian boot camp in Colorado Springs, Colorado. LeFevre preached a form of unchecked capitalism in which there is almost no government power. That is to say, you can see LeFevre's influence on Koch's thinking in a manifesto Charles wrote for the Libertarian Review in the 1970s, "The Business Community: Resisting Regulation." Charles lays out principles that gird the Tea Party movement in the 2000s. Referring to regulation as "totalitarian." He advocated the "barest possible obedience" to law and implored, "Do not cooperate voluntarily. Instead, resist whenever and to whatever extent you legally can in the name of justice."
Join the Party, Pal
After his father died in 1967, Charles, now in command of the family business, renamed it Koch Industries. It had grown into one of the country's ten most significant privately owned firms, buying and selling some 80 million barrels of oil a year and operating 3,000 miles of pipeline. Charles ran the business like he did his personal life, with complete aggressiveness. The company would build pipelines to encouraging oil fields with no contract from the producers and place tanker trucks beside wildcatters' wells, hoping that the crude would flow.
Meanwhile, Charles convinced David to stand as the Libertarian Party's vice-presidential candidate in 1980. The move would allow David to spend unlimited money on his ticket. The Koch-funded 1980 platform was nakedly in the brothers' self-interest – slashing federal regulatory agencies, offering a 50 percent tax break to top earners, ending the estate tax, and abolishing a $16 billion "windfall profits" tax on the oil industry.
During the 80s, Charles' management style and interest in controlling the GOP narrative had a deep connection. However, his brother Bill was not in favor of his approach. He felt his brother's behavior and far-right approach would damage the company's name.
In late 1980, with Frederick's backing, Bill launched an unsuccessful battle for control of Koch Industries, aiming to take the company public. Three years later, Charles and David bought out their brothers for $1.1 billion. On the other hand, Bill thought he had been tricked by his brothers but was never quite able to prove it. Bill's response, he would spend the next 18 years suing his brothers, calling them "the biggest crooks in the oil industry."
You may Have Won the Battle...
The new focus for the Koch family was the GOP and the influence they'd impose. The Kochs had become dedicated patrons of Sen. Bob Dole of Kansas, who ran interference for Koch Industries in Washington. On the Senate floor in March 1990, Dole gloatingly cautioned against a "rush to judgment" against Koch, citing "very real concerns about some of the evidence on which the special committee was basing its findings." A grand jury investigated the claims but disbanded in 1992 without issuing indictments.
During this time, the Democrats were taking their first feasible swing at controlling the pollution big oil refiners were spuing out into our air. The bill was called the BTU tax. It was the earliest attempt by the federal government to recoup damages from climate polluters. However, the Koch Industries could not stand losing its most valuable subsidy: the public policy that allowed it to treat the atmosphere as its personal trash can. Richard Fink, head of Koch Company's Public Sector, openly stated: "Our belief is that the tax, over time, may have destroyed our business."
David Koch funded a new grassroots group called Citizens for a Sound Economy with an estimated personal cost of $8M. The group was considered "a sales team" to communicate the brothers' political agenda through town hall meetings and anti-tax rallies designed to resemble spontaneous demonstrations (think flash mob). Citizens played a crucial role in defeating the administration's plans for a vast and cumbersome BTU tax.
For the moment, Charles would manage the business and continue to face massive pushback from the EPA in the form of record civil and criminal investigations and penalties. His new focus would be on defanging the EPA and rendering it impotent.
EPA Wins (?)
The lead cause for the EPA was the aging pipeline the Koch brothers used to transport their oil. They did not want to fix or repair the pipeline as it would cost more money to fix than they would just by leaving it to leak oil. In economics 101, this would fall under the term opportunity cost.
Finally, the brittle pipeline exploded when a valve snapped shut in 1994. More than 90,000 gallons of crude spewed into Gum Hollow Creek, destroying surrounding marshlands and both Nueces and Corpus Christi bays with a 12-mile oil slick.
In 1995 the EPA sued Koch for gross violations of the Clean Water Act. From 1988 through 1996, the company's pipelines spilled 11.6 million gallons of crude and petroleum products. Internal Koch records showed that its pipelines were in such poor condition that it would require $98 million in repairs to bring them up to industry standard.
As a result, the Koch brothers had to pay $30M in civil penalties. Texas Attorney General John Cornyn, the future Republican senator, had joined the EPA in bringing suit against Koch. How did the Kochs respond? The following year a lobbyist for Koch was assigned to be Cornyn's primary campaign funder. Welcome to the family.
Who has the Power?
I have provided just one example of the massive spills and leaching their pipelines and refinery plants have created over the years. Through much of the 1990s, its Minnesota Pine Bend refinery spilled up to 600,000 gallons of jet fuel into wetlands near the Mississippi River. In 2000, there was a 97-count indictment over claims Koch violated the Clean Air Act by venting massive quantities of benzene at a refinery in Corpus Christi – and then attempted to cover it up.
Where does the greed end and the health of our citizens and planet begin? Understanding how our officials get elected and the funding mechanism behind it (see citizens united) is important. Essentially, the Supreme Court ruled that corporations could fund and support candidates for election. Why would a corporation want to invest in a candidate in the White House or legislative body? Consider what I wrote above. No rules and regulations mean you can do whatever you want, regardless of who it hurts. It is just good business...
We all have the power. It doesn't rest in the hands of the rich; it has always been with us. We just forgot.
