An abridged version of this article was first published
in the New York Observer

Mainstream America is finally getting to know the billionaire brothers backing the libertarian movement, thanks to a pair of dueling profiles in New York and The New Yorker. Now that we’ve heard about their charitable giving, David’s 240-foot mega-yacht and role as patrons of the Tea Party movement, it’s time to ask a more serious question: How libertarian are they?

The short answer…not very.

Charles and David Koch, the secretive billionaire brothers who own Koch Industries, the largest private oil company in America, have spent millions bankrolling free-market think tanks and pro-business politicians in order, as David Koch has put it, “to minimize the role of government, to maximize the role of private economy and to maximize personal freedoms.” But a closer look at their dealings reveals that for the past 35 years the brothers have never shied away from using government subsidies to maximize their own profits, even while endeavoring to limit government spending on anything else. Simply put: the Kochs have no problem with socialism — as long as they’re in on the action.

In 1977, Charles Koch founded the Cato Institute, an influential libertarian think tank, with the aim of injecting free-market ideas into the mainstream. The Kochs would go on to establish and fund a vast network of overlapping think tanks, institutes, foundations, media outlets, and lobby groups that would vilify centralized government and promote laissez-faire capitalism as the only route to economic prosperity. The Mercatus Center, Americans for Prosperity, Reason Magazine, the Federalist Society and the Heritage Foundation are just a few of the right-wing organizations that run on Koch cash today.

Koch Industries is America’s second-largest private corporation, with revenue of $100 billion in 2009, and 80,000 employees in 60 countries. According to Charles Koch, Koch Industries has grown 2,000-fold since he took over from his dad in 1967, transforming a middling oil transportation and refinement operation into a corporate mini-state involved in oil, petrochemicals, paper, agriculture and financial services. Worth just under $20 billion apiece, the brothers live like emperors. David Koch, 70, resides in a Park Avenue and likes to take a few weeks off every year to lounge on his 246-foot megayacht in the Mediterranean, which costs $500,000 a week to operate and has been rented out for pleasure cruises by Prince Charles.

Seventy-four-year-old Charles G. Koch, who runs the company from a compound in Wichita, Kansas, has attributed the company’s success to an unshakable belief in the power of the free-markets—a belief that he says can be traced back to an “intellectual epiphany” he experienced at a conference more than 40 years ago. There, Koch realized that free-market economics were an objective reality “as immutable as the laws that work in science,” he explained in 2006.

In its recent profile, the New Yorker called Charles and David Koch “the primary underwriters of hard-line libertarian politics in America.” But the magazine failed to mention that their free market philanthropy belies the immense profit they have made from corporate welfare.

1. SOCIALIST SHIPBUILDING

2. VENEZUELAN FERTILIZER

In 1998, Koch Industries entered into a lucrative partnership with two state-owned companies–one Venezuelan, the other Italian–to open a massive $1 billion nitrogen-based fertilizer plant in Venezuela called Fertinitro.

A business venture with two state-run companies? How did Koch Industries find itself in this libertarian nightmare scenario? After all, Charles Koch’s own Cato Institute brain trust has been writing for decades that state-owned enterprises are less efficient and productive than private companies.

Fertilizer production requires massive amounts of natural gas, and obtaining it can account for 50 percent of operating costs. Luckily for Koch, Fertinitro’s semi-state-owned status allowed it to tap into a guaranteed supply of natural gas subsidized by the state. Steven Bodzin, a former Bloomberg journalist, found that “just on the natural gas, never mind the electricity or water subsidies, Koch profits from a direct Venezuelan government subsidy of $1.23 for every thousand cubic feet of gas consumed at Fertinitro.” For Koch Industries, whose role in the partnership is to unload half of the 6 million tons of fertilizer produced by Fertinitro every year on the American market, that equals up to $123.6 million in subsidies every year.

Savor the irony: While tea partiers wave Koch-funded placards comparing President Obama to Hugo Chavez, the Kochs are busy profiting off Chavez’s socialist economy—only to turn around and blame Venezuela’s poverty on Hugo Chavez’s socialist policies.

3. RANCHING

This article was first published on Alternet.org

“I would rather live under a bridge than live under socialism”

—tea bagger slogan

Everyone knows that Tea Party revolutionaries fear and hate socialism about as much as the Antichrist. Which is funny, because the Tea Party movement’s dirty little secret is that it owes its existence to the grandaddy of all Antichrists: the godless empire of the USSR.

What few realize is that the secretive oil billionaires of the Koch family, the main supporters of the right-wing groups that orchestrated the Tea Party movement, would not have the means to bankroll their favorite causes had it not been for the pile of money the family made working for the Bolsheviks in the late 1920s and early 1930s, building refineries, training Communist engineers and laying down the foundation of Soviet oil infrastructure.

The comrades were good to the Kochs. Today Koch Industries has grown into the second-largest private company in America. With an annual revenue of $100 billion, the company was just $6.3 billion shy of first place in 2008. Ownership is kept strictly in the family, with the company being split roughly between right-wing brothers Charles and David Koch, who are worth about $20 billion apiece and are infamous as the largest sponsors of right-wing causes. They bankroll scores of free-market and libertarian think tanks, institutes and advocacy groups. Reason magazine, Heritage Foundation and Cato Institute are just a few of Koch-backed free-market operations. Greenpeace estimates that the Koch family shelled out $25 million from 2005 to 2008 funding the “climate denial machine,” which means they outspent Exxon Mobile three to one.

I first learned about the Kochs in February 2009, when Mark Ames and I were looking into the strange origins of the then-nascent Tea Party movement. Our investigation led us again and again to a handful of right-wing organizations and think tanks directly tied to the Kochs. We were the first to connect the dots and debunk the Tea Party movement’s “grassroots” front, exposing it as billionaire-backed astroturf campaign run by free-market advocacy groups FreedomWorks and Americans For Prosperity, both of which are closely linked to the Koch brothers.

But the Tea Party movement—and Koch family’s obscene wealth—go back more than half a century, all the way to grandpa Fredrick C. Koch, one of the founding members of the far-rightwing John Birch Society which was convinced that evil socialism was taking over America through unions, colored people, Jews, homosexuals, the Kennedys and even Dwight D. Eisenhower.

These days, the Kochs paint themselves as true-believer Libertarians of the Austrian School. Charles Koch, the elder brother who runs the family business in Wichita, Kansas, quotes the wisdom of proto-libertarian “economist” Ludwig von Mises, but also sees himself as a thinker in his own right. In 2007, Charles made his contribution to the body of free-market thought with an economic theory he calls Market-Based Management® (trademark protected, of course), which he lays out in a book titled the Science of Success. A Forbes reviewer seemed a bit disturbed by Charles’ overt socialist leanings, writing that the “author professes an almost Marxist faith in the ‘fixed laws’ that ‘govern human well-being.’”

David Koch is the highbrow brother who lives in New York. He ran as the Libertarian party candidate for vice-president in 1980 and says that his dream is to “minimize the role of government, to maximize the role of private economy and to maximize personal freedoms.” Apparently everyone’s a free-market enthusiast at Koch Industries, including their spokeswoman, who recently wrote a letter to the New York Times stating that “it’s a historical fact that economic freedom best fosters innovation, environmental protection and improved quality of life in a society.” It might be true somewhere for someone, but not for the Kochs—they owe it all to socialism and totalitarianism.

Here is a better historical fact, one that the Kochs don’t like to repeat in public: the family’s initial wealth was not created by the harsh, creative forces of unfettered capitalism, but by the grace of the centrally-planned economy of the Soviet Union. This deserves repeating: The Koch family, America’s biggest pushers of the free-market Tea Party revolution, would not be the billionaires they are today were it not for the whim of one of Stalin’s comrades.

The story of how the Koch family amassed its socialist wealth starts at the turn of the 20th century with the birth of Fredrick C. Koch. Fred was born in a tiny town in north Texas town to a Dutch immigrant and newspaper publisher. The historical record is not clear about the family’s wealth, but it appears that great-granddaddy Koch was not hurting for cash, because Fred Koch turned out to be a smart kid and was able to study at MIT and graduate with chemical engineering degree. A few years later, in 1925, Fred started up the Winkler-Koch Engineering Company with a former classmate, quickly developing and patenting a novel process to refine gasoline from crude oil that had a highe-yield than anything on the market. It was shaping up to be an American success story, where anything was possible with a bit of elbow grease and good ol’ ingenuity.

The sky was the limit—until the free market rained on Fred’s parade.

See, Fred was living through the Roaring Twenties, a time of big business, heavy speculation and zero government regulation. Much like today, cartels were free to form and free to fix—and so they did. Sensing a threat to their royalty-revenue stream from Winkler-Koch’s superior refining technology, the reigning oil cartel moved in to teach the young Koch how the laissez-faire business model worked in the real world.

“[W]hen he tried to market his invention, the major oil companies sued him for patent infringement. Koch eventually won the lawsuits (after 15 years in court), but the controversy made it tough to attract many US customers,” according to Hoover’s Company Records service. Just like that, Winkler-Koch Engineering found itself squeezed out of the American market. They had a superior product at a cheaper price, but no one to sell it to.

Luckily, there was one market where opportunity beckoned—and innovation was rewarded: the Soviet Union.

Stalin’s first Five Year Plan was just kicking into action a nation-wide industrialization effort, and the Soviet planners needed smart, industrious college grads like Fred Koch. The Soviet Union was desperately trying to increase its oil refining capacity, so oil engineers were especially in high demand—and well paid, too.

“We are the world’s greatest market, and we are prepared to order a large amount of goods and pay for them,” Joseph Stalin told an American journalist in 1932. Stalin wasn’t kidding. From 1926 to 1929, the Soviet oil industry bought $20 million worth of equipment from America. And Koch was about to get in on the action.

In 1929, after hosting a delegation of Soviet planners in Wichita, Kansas, Winkler and Koch signed a $5 million contract to build 15 refineries in the Soviet Union. According to Oil of Russia, a Russian oil industry trade magazine, the deal made Winkler–Koch into Comrade Stalin’s Number One refinery builder. It provided equipment and oversaw construction:

The first Winkler–Koch plants were set up in Tuapse in 1930. The cracking unit operated commendably, and would in the future be the type preferred by the heads of the Soviet Union’s petroleum industry when purchasing new cracking equipment.

In 1931, two Winkler–Koch cracking units were launched in Baku, another two in Batumi, and six at once in Grozny; the last had a combined refining capacity of 900,000 tons per year. In 1932, a Winkler–Koch unit commenced operations in Yaroslavl.

At the time, the Soviet Union’s oil industry was a total mess. Equipment built by Western engineering firms was always breaking down or didn’t work at all. Western engineers were constantly being accused of espionage or sabotage, real or imagined, and booted out of the country. Soviet workers suspected of colluding with the foreigners were simply taken out back and shot. Winkler-Koch made sure they were running a tight, effective operation. Unlike their Western competitors, Koch pleased his Soviet clients by ensuring top quality and helping the cause of socialism.

Koch lived up to the slogan: “Work hard enough for Comrade Stalin to thank you!”

The Soviet oil planners were delighted with Koch’s refineries, which “operated commendably, and would in the future be the type preferred by the heads of the Soviet Union’s petroleum industry when purchasing new cracking equipment.” The Communists were so impressed they kept giving Winkler-Koch business and regularly sent Soviet engineers to train in Wichita. It was a sign of growing mutual trust.

By the time he got out in 1933, Koch earned $500,000, which was a ton of money for a kid fresh out of college. This nut of money served as the foundation for the family’s future wealth, which Koch no doubt started acquiring at rock-bottom prices. After all, 1933 was one of the two worst years of the Great Depression—all assets were priced to go at 90% off. In the end, the capitalist-hating socialists ended up treating Koch fairly, way better than the monopolistic thrashing he got from his native land. So you’d think he’d at least something good to say about the Soviet Union when he got home?

Nope, not at all. He hated the Commies real bad. But for some reason he kept it to himself until the late 1950s (possibly because he was still doing work for the Soviet Union). Then, after coming back from a trip to the Soviet Union in 1956, he flies off the handle. According to a 1956 AP article, Fred Koch was among eleven prominent residents of Wichita, Kansas, “left for Moscow by plane today in an effort to convince the Russian people that Soviet propaganda about capitalists is untrue.” Sounds like the perfect cover for a business trip.

It’s not clear what he was actually doing there. But whatever the outcome—maybe he didn’t get the contract he was expecting or maybe he got swindled out of some investment or maybe he plain ol’ hated the thaw of post-Stalin Russia—Fred Koch came back a pissed-off anti-Communist freak and joined up with the right-wing Bircher freak show. He bankrolled a John Birch Society chapter in Wichita and attempted to open a Bircher bookstore, which wasn’t too popular and had to close.

He warned of a massive Communist conspiracy to take control of America, saying that the Reds were eroding American universities, churches, political parties, the media and every branch of government. “Maybe you don’t want to be controversial by getting mixed up in this anti-communist battle,” Koch said in a speech to a Women’s Republican Club in 1961. “But you won’t be very controversial lying in a ditch with a bullet in your brain.” Strong words for a strong Stalin Queen—must’ve rocked the stockings off the Bircher groupies.

In 1961, Koch published a pamphlet called “A Businessman Looks At Communism,” in which he recounted his travels with a “hardcore Communist” named Jerome Livshitz. It was from him Fred Koch had first learned about the commie conspiracy to take over America:

The government detailed a little man by the name of Jerome Livshltz to go around to our various installations with me. Livshitz had taken part in the revolution of 1905, and had spent twelve years in the U.S.A. as a revolutionary, most of the time in jails….

In the months I traveled with him he gave me a liberal education in Communist techniques and methods. He told me how the Communists were going to infiltrate the U.S.A. in the schools, universities, armed forces and to use his words, “Make you rotten to the core.” I believe that due to his American experience he was one of the original architects of the Communist plan of subversion of the U.S.A.

My associate and I pulled him from under an overturned car in Tiflis, and he was amazed. “Why did you save my life?” he said. “We are enemies. I would not have saved you. Perhaps when the turn there, I will spare your lives.” He told me that if his own mother stood in the way of the revolution he would strangle her with his bare hands. This is the mark of a hard-core Communist. They will do anything—anything.

Fred Koch’s paranoia continued to spiral out of control until his thumper quit in 1967. But by that time his son, Charles G. Koch, had already taken over control of the family business. He appropriated his father’s Communist paranoia and made it the basis for the family’s free-market business philosophy.

“Once, my father ran a business in the ex-Soviet Union, and all engineers who worked with my father were imprisoned by Stalin later. My father, who had experienced this, became an anti-communist and thought the value of economical freedom and prosperity was more important than ever before,” Charles said during an interview with a Korean newspaper in 2008, leaving out the part how evil socialist cash is the foundation of the Koch family’s wealth.

Once he took over, it was clear that Charles had big plans for Koch Industries. He was going to push the limits of corporate growth by plowing 90% of the company’s profits back into till and diversifying to the max. It worked. The company expanded at an unreal rate: its revenues increased from $100 million in 1966 to $100 billion in 2008—that’s 1,000-fold growth!

Today, it operates thousands of miles of pipelines in the United States, refines 800,000 barrels of crude oil daily, it buys and sells the most asphalt in the nation, is among the top ten cattle producers, and is among the 50 largest landowners. Koch Industries also plowed hundreds of millions of dollars into right-wing organizations like Institute for Humane Studies, the Cato Institute, the Mercatus Center at George Mason University, the Bill of Rights Institute, the Reason Foundation, Citizens for a Sound Economy and the Federalist Society—all of them promoting the usual billionaire-friendly ideas of the free market, deregulation and smaller government.

If that expansion looks too fast to be legit, that’s because it was.

William Koch, the third brother who had a falling-out with Charles and David back in the ’80s over Charles’ sociopathic management style, appeared on “60 Minutes” in November 2000 to tell the world that Koch Industries was a criminal enterprise: “It was – was my family company. I was out of it,” he says. “But that’s what appalled me so much… I did not want my family, my legacy, my father’s legacy to be based upon organized crime.”

Charles Koch’s racket was very simple, explained William. With its extensive oil pipe network, Koch Industries’ role as an oil middleman–it buys crude from someone’s well and sells it to a refinery–makes it easy to steal millions of dollars worth of oil by skimming just a little off the top of each transaction, or what they call “cheating measurements” in the oil trade. According to William, wells located on federal and Native American lands were the prime targets of the Koch scam.

“What Koch was doing was taking all these measurements and then falsifying them on the run sheets,” said Bill Koch. “If the dipstick measured five feet 10 inches and one half inch, they would write down five feet nine and one half inches.”

That may not sound like much, but Bill Koch said it added up. “Well, that was the beauty of the scheme. Because if they’re buying oil from 50,000 different people, and they’re stealing two barrels from each person. What does that add up to? One year, their data showed they stole a million and a half barrels of oil.”

In 1999, William decided to take his brothers down. He sued Koch Industries in civil court under the False Claims Act, which allows whistleblowers to file suit on behalf of the federal government. William Koch accused the company of stealing hundreds of millions of dollars in oil from federal lands.

The band of brothers settled the case two years later, with Charles agreeing to pay $25 million in penalties to the federal government to have the suit dismissed. It turned out to be a great deal for Charles and David, considering that in the 1980s their “adjustments” allowed Koch Industries to siphon off 300 million gallons of oil without paying. It was pure profit–free money–to the tune of $230 million.

At the trial, 50 former Koch gaugers testified against the company, some in video depositions. They said employees even had a term for cheating on the measurements.

“We in the company referred to it as the Koch Method because it was a system for cheating the producer out of oil,” said one of the gaugers, Mark Wilson.

Ah, finally! We’ve stumbled upon the secret to the family’s success! At the bottom of it all, the Koch Method that funds all the libertarians is nothing but good old-fashioned plunder. Or, as Koch hero Ludwig von Mises might say, “The Koch Method is just an unceasing sequence of single scams.”

Yasha Levine is a mobile home inhabitin’ editor of The eXiled. He is currently stationed in Victorville, CA. You can reach him at levine [at] exiledonline.com.

Further reading

1. A People’s History of Koch Industries, Part II: Libertarian Billionaires Charles and David Koch Are Closetcase Subsidy Kings Who Milk Big Government Tyranny, But Want To Slash Spending On Anyone Else

2. The investigation that broke the Tea Party movement wide open: “Exposing the Rightwing PR Machine: Is CNBC’s Rick Santelli Sucking Koch”

3. CNBC Bitch-Slaps Santelli Into Line, FreedomWorks Admits It Organized “Grassroots” Tea Parties, Jon Stewart Cancels Santelli & Megan McArdle Queefs On Our Founding Fathers

4. How FreedomWorks Gave Teabaggers a Dirty Sanchez

5. AstroTurf Revolution Dispatch: Activists Teabag Media

6. Freemarket Failures: Investors Prefer Doing Business With Hugo Chavez Over Billionaire Koch Brothers

Ever wonder who exactly those 47% of Russians are who are nostalgic for the days of Stalin? Here is one babushka caught singing the Soviet anthem, and singing, and singing, testing the notoriously patient Russian masses…until one of the masses, a ponytailed Western-leaning liberal, finally gets up and air-strangles her. Final score: Stalinist 1, Ponytailed Liberal 0.

A map of Zhukov’s attack on Japan’s Imperial Army bears a strange resemblance to the inner jaws of those giant sandworms in Dune

How the Japs got served with the 3,000-mile long Stalin Roll combo

Everybody knows about the Fall of Berlin. You Russians will be out in the streets next week doing your Victory Day thing commemorating the capture of the Reichstag, Hitler eating Luger lead, and—on a sadder note—the end of the long, sweet rape-fest Russian soldiers enjoyed on their triumphant march through Prussia.

Browse Column

Yes, their happy thoughts of home and hearth were tempered, as the preachers say, by the realization that their big Woodstock of free, forced love was about to come to an end.

What most people don’t know is that the Red Army had another huge triumph still to come: a crushing strategic victory on a front 3000 miles long, with 1.6 million Soviets annihilating a force that, on paper at least, totaled more than a million battle-hardened Axis troops. I’m talking about Operation August Storm, the Soviet invasion of Japanese-held Manchuria on August 9, 1945—exactly three months after the surrender of the Nazis.

That date is no coincidence. Stalin was a smart shopper, with the gift of timing—if he’d been born a little later and Wester, he would’ve got rich on eBay, gotten into breeding Shih Tsu or something, and all those people wouldn’t have had to die. Anyway, Stalin  made a deal with FDR and Churchill at Yalta (Feb. 1945). It was clear by that time that the Germans were finished, and now it was the Americans’ turn to demand a second front to ease their war burden, this one against Japan.

So Stalin signed on the dotted line: he’d invade Japan’s Manchurian colony within three months of the defeat of the Nazis. The deal was, he had to meet that yardstick—it was like one of these NFL contracts with incentive clauses, the ones they do when the draft choice has loads of talent and a massive coke habit. The Big Three, Stalin, FDR and Churchill, were all smiles at the photo ops, but not stupid enough to trust each other. So Churchill and FDR put in a sweetener for their Soviet pals: if the Red Army attacked Japan’s Manchurian colony within three months of the Nazis’ final defeat, the USSR would get permanent occupation of Sakhalin Island, a big long streak of icy forest north of Hokkaido, and the Kuril Islands, a string of fog-bound rocks looping from the North end of Hokkaido to the Southern tip of the Kamchatka Peninsula.

Not exactly Rodeo Drive in terms of valuable real estate, but those places meant a lot to Stalin: they’d been grabbed from the Russians by the Japanese in the Russo-Japanese war of 1904-05. It was one of those old disgraces that world powers tend to get all obsessive and unhealthy about, like Hitler forcing the French to surrender in the same lousy railroad car where they’d made Germany surrender in 1918. That was what pre-Abba Europe used to be like: never learned anything new, and never, ever forgot a grudge.

There was something kind of poetic-justice about the way the Americans were begging the Soviets to open up a second front against the Japs, because the Russians had been begging the Anglos to open a second front against the Germans for years—two-and-a-half years, actually, counting from Pearl Harbor (Dec. 7, 1941) to D-Day (June 6, 1944).For all that time, the Soviet armies had fought alone against the Wehrmacht, the finest land army since the Mongols. And all that time they were screeching, “Hey Allies, buddies, ol’ pals, how about a LITTLE HELP HERE!”

The Anglos had some pretty good excuses, like the fact that the US was gearing up as fast as it could, passing most of its industrial production directly to its allies while dealing with the Japanese in the Pacific—but to the Soviets, who lost at least 20 million people to the Germans, those years of waiting for the Normandy front to debut seemed like a real long time. I read somewhere that there was a joke making the rounds in wartime Moscow:

Q: What is the definition of an optimist?

A: Someone who believes in a second front.

Pretty lame, joke-wise, but I guess it wasn’t adaptive for Russians to make any really smart jokes while the NKVD was listening. Anybody who got any wittier than Yakov Smirnov was likely to win a free GULAG tour package. And at least the joke makes my point: for Russia, those three years were like trying to hold off a rabid grizzly while your allies kept saying in a cheerful-asshole voice: “Be there in a sec! Just hang in there, think positive!”

So Stalin had every reason to turn the tables now, let the Americans bleed the Japanese in the Pacific up till the last moment possible, wait until the Imperial forces were a shell, then send in the T-34s. The fact that the Soviet invasion of Manchuria came exactly three months after the fall of Berlin, the maximum time allowed under the Yalta Agreement, might suggest to some of you cynical folks that the generalissimo was biding his time.

But you have to remember, Spring and Summer 1945 was a busy time for all concerned. The Russians were busy rounding up all the surviving Wehrmacht troops and allies (and the Wehrmacht had a lot more allies than anybody wants to talk about these days), maneuvering for position in postwar European power politics, and trying to deal with all the sheer destruction the Germans had visited on Western Russia. The Japanese had to watch their Greater Asia Co-Prosperity Sphere wiped off the map, island chain by island chain. Even on the Home Islands there was a lot more than cherry blossoms falling that Spring. On March 9, the new B-29 Superfortresses dropped incendiary bombs that gutted Tokyo and killed more people, maybe—they’re still not sure but the estimates go up to 200,000—than the A-bombs that fell on Hiroshima and Nagasaki, just before the Soviets struck Manchuria.

The Japanese had a weirdly passive, almost hopeful attitude toward Stalin anyway, going way back to the early 1930s. Right up to the end, they kept hoping he’d let them alone, or even broker a peace deal that would keep the Americans out of Japan. They were all for fighting to the death against the Yankees, but they kept dreaming that Uncle Joe had a soft spot for them.

Bizarre, but then one thing you notice when you study Imperial Japanese “thought,” if you can even call it that, is that they weren’t much on cold-blooded analysis.