Economic freedom: a heated debate

Discovery
JULY 2012
THE QUARTERLY NEWSLETTER OF KOCH COMPANIES
Economic freedom: a heated debate
For more than 20 years, Flint Hills Resources’ Pine Bend Refinery has provided
realistic training opportunities for rookie
firefighters from area fire departments.
Government policymakers, by contrast,
seem to have had much less effective
training when it comes to dealing realistically with economic firestorms.
Ever since the economic meltdown that
began in 2008, governments have spent
trillions of borrowed and newly created
money trying to avoid economic disaster.
And yet, recent
reports from the
European Union,
Asia and the
United States have confirmed ongoing
problems with high unemployment, sluggish growth and – in most cases – swelling deficits. An estimated 80 percent of
the world economy is now slowing.
Consequently, the debate over how to
solve these problems is heating up again.
Many are calling for further government
intervention, especially the imposition
of higher taxes and the spending of even
more borrowed (or created) money.
Economic freedom means people are
free to make their own economic choices
under a beneficial rule of law. Their
property is protected and they can lead
their lives without undue government
interference. They can start a business,
sell their property or work for whomever
they please with a minimum of government interference.
Working families and the most vulnerable – including the poor, aged and disabled – are far better off in nations with
a high degree of
economic freedom.
It’s no coincidence
that citizens of
Source: Bridgewater
South Korea have
much higher incomes, literacy rates and
life expectancies than those living in
North Korea. They also enjoy a much
cleaner environment.
An estimated 80 percent of the
world economy is now slowing.
A better way
Charles Koch, chairman and CEO of
Koch Industries, sees a better solution for
many of these problems: greater economic freedom.
“Long-term, widespread prosperity,” Koch
says, “is only possible in free societies.
This is why the fight for economic freedom is so important.”
this issue…
Challenges
Even with so many demonstrated benefits, the principles of economic freedom
(see page 4) are under attack.
Out-of-control government spending,
destructive regulations that stifle innovation and job creation, and cronies who
count on the government to keep them
profitable, are all undermining economic
freedom and the ability of entreprenuers
to create value for customers and society.
Too many critics ignore how economic
freedom generates economic growth,
which means much more than just the
creation of new jobs.
Growing in France
2012 EH&S awards
pg 3
pg 6
As Harvard economist Benjamin Friedman put it: “Economic growth almost
always fosters greater opportunity,
tolerance of diversity, social mobility,
commitment to fairness and dedication
to democracy.”
Downwardly mobile
Economic Freedom of the World is an annual, non-partisan study published by the
Fraser Institute. It compares 141 countries using 10 key measures, such as the
freedom to invest, degree of corruption
and level of government spending.
The U. S. used to be near the very top of
the rankings, but fell from third place in
2000 to number 10 in 2009, and is likely
to fall even farther.
With an overall score of just 76.3 (out of
100), the U.S. is no longer considered
economically “free.” Rather, it has fallen
into the “mostly free” category.
“Restoring the U.S. economy to the status
of a 'free' economy,” says this year’s report,
“will require significant policy changes to
reduce the size of government, overhaul
the tax system, and transform costly
entitlement programs.
“By boosting growth in the private sector,
such freedom-enhancing policies are the
best hope for bringing down high unemployment rates and reducing public debt
to manageable levels.”
As they have for nearly 50 years, Koch’s
shareholders support policymakers of any
political party who support these kind of
market-based policies and initiatives.
Economic freedom: what it means
College grad seeks job pg 4
pg 7
Postal Pipeline
On the cover:
Rookies from the St. Paul Fire Department receive
training at Flint Hills Resources’ Minnesota refinery.
FHR has provided realistic training opportunities to area
fire departments for more than 20 years.
I just returned from Japan, where I visited the affected area. There, I asked the
governor and the mayor what would be
their messages to our American friends.
I read your Discovery newsletter with
interest, which is how I recently discovered
your ranches and the success of those.
They told me: “Please tell Americans
thank you for all your support. We are
now recovering, but it will take more
time. Please do remember us. Trade
with us. Invest in us. Visit us.”
I wanted you to know about the success
of our Boys & Girls Club programs and
how we are truly making a difference in
the lives of many kids.
Collectively, our kids maintained above a
B average throughout the last school year,
and a 3.2 GPA in arts and sciences.
Members of our Koch-funded Opportunities Through Economics program
participated in the national Stock Market
Game both semesters. Each semester, our
club had a team ranked in the top five for
our region (out of more than 250 teams).
Workstations for anatomy, biology,
technology and puzzle-solving have been
added to the science and technology
program. K-12 members have heavily
utilized these workstations, which are
an alternative to internet browsing and
a fun way to gain exposure to science,
technology and logic.
These are remarkable improvements
from where we were in January of 2009.
Jeff Jacobs
Chief professional officer
Boys & Girls Club of South Central Kansas
Wichita, Kan.
Photo courtesy A.R.C.
Last year, KII donated a total of $1 million to the
American Red Cross and Salvation Army to help fund
relief efforts in Japan.
With one year having passed since the
great East Japan earthquake and tsunami
disasters, I would like to express my
sincere appreciation for Koch Industries’
generous support and donations toward
Japan’s reconstruction efforts.
We would like to thank the FHR-Pine
Bend team for taking the time to meet
with us and providing valuable information concerning competitive advantages.
The information shared was invaluable to
the success of our final presentation and
paper for our Strategic and Operational
Planning class at Argosy University.
We were especially impressed with the
responsible processes and the ingenuity
resulting in above-standard performance
to ensure a clean safe environment. We
stressed this in our presentation.
We were all amazed and inspired by the quality standards which make FHR and Koch
Industries the great businesses they are.
2
Ichiro Fujisaki
Ambassador of Japan to the U.S.A.
Washington, D.C.
June 28 – Three Koch Aviation pilots recently retired after
a combined 70 years of service. Capt. Vincent “Wink” Carlson
and Capt. Don Janke were based in Wichita. Capt. Larry Starke
(shown below) was based in Atlanta. All three received a
traditional water cannon “salute” after making their final landing.
Flint Hills Resources has developed into
an asset to Minnesota and all surrounding areas. It is clearly a positive role model
to all industrial sites.
The Koch Industries business model is
admirable and has a proven track record.
This is reflected in the quality of its
employees, core values and the ethical
practices it prides itself on.
June 17 – Boys and Girls Club members visiting the Koch
campus participated in a paper airplane competition as a way
of learning how entrepreneurs solve problems through rapid
prototyping and innovation.
Your outstanding support meant a lot to
us, and the Japanese people will never
forget it. From the bottom of my heart,
I would like to say arigato-gozaimasu
(meaning thank you very much).
Eileen Kownslar, Dave Aune,
Alexander Gandah and Anuli Okolo
Argosy University
Eagan, Minn.
To “like” and follow Koch companies and leaders –
including Georgia-Pacific, INVISTA, Flint Hills
Resources, Matador Ranch, Koch Pipeline and
Charles Koch – visit Koch Industries’ Facebook page.
Letters and other submissions become the property of Koch
Industries, Inc., and may be reproduced in whole or in part,
including your name, for any purpose and in any manner.
Letters may be edited for length or clarity.
Discovery
Editorial board
Philip Ellender
Rich Fink
Jeff Gentry
Dale Gibbens
Greg Guest
Charles Koch
Jim Mahoney
Dave Robertson
July 2012 | Volume 18 | Number 3
Questions? Comments?
Contact: Rod Learned
316.828.6136
rod.learned@kochps.com
Publication design:
Amber Vogts
Koch Creative Group
www.kochind.com
©2012, Koch Industries, Inc. Koch is an EOE. M/F/D/V
International News
N e x e N ™ , l ’ a zo t e c h a n g e d ’ é p o q u e . . .
le progrès azoté
France is the EU’s largest food producer.
Nexen™ fertilizer debuted in France in April.
France – François Hollande, the newly
elected president of France, has plenty of
economic worries these days.
Economic growth has stalled, unemployment remains high and his nation’s credit
rating has been downgraded. He must
also deal with the future of the euro zone,
which seems very uncertain.
There is, however, one segment of the
French economy that remains relatively
strong: agriculture.
France is the European Union’s largest
agricultural producer and one of the
world’s largest food exporters (second
only to the United States). Last year, it
had an agricultural trade surplus of more
than €10 billion.
With hundreds of thousands of farms
producing everything from grain to
grapes, it comes as no surprise that
France is the largest market for fertilizer
in Western Europe. It consumes 7 million tons of nitrogen fertilizer per year.
That demand has drawn the attention
of Koch Fertilizer, one of the world’s
largest producers and marketers of
fertilizers, including high-performance
AGROTAIN® and AGROTAIN® PLUS
nitrogen stabilizers.
Stabilized fertilizers are high-performance products incorporating a special
treatment that increases the amount of
nitrogen retained in the soil and available
for the crop by as much as 58 percent.
Just 15 years ago, experts were saying
there was “no technical breakthrough in
sight” that would result in such products.
That was before a Koch Fertilizer subsid-
AGROTAIN® stabilizers help Nexen™ fertilizer deliver more nitrogen.
iary helped pioneer a new generation of
more efficient fertilizers with the added
benefit of reduced emissions.
French farmers (and their government)
have long been interested in the development of fertilizers that can boost crop
yields while also doing a better job of
protecting the environment. AGROTAIN® helps achieve both goals.
In April, Koch Fertilizer introduced
Nexen™ fertilizer to France. Like Koch
Advanced Nitrogen® fertilizer, made in
the U.K., Nexen™ features a patented
AGROTAIN® stabilizer that reduces
nitrogen loss to the environment.
Growing regulations
Farmers aren’t the only ones with an interest in these new products. The United
Nations’ Food and Agriculture Organization has commissioned studies of
fertilizer stabilizers, as has the European
Union (which spends half of its annual
budget on agriculture).
Many regulators in the EU would like a
single set of fertilizer “rules” that can be
applied to all countries at all times. As
it is, almost every member nation has a
different set of standards.
In January, the European Commission
(the executive body of the EU, responsible
for proposing legislation) was presented
with a study that recommended several
ways to “fully harmonize” the use of fertilizing materials across Europe.
As with many other industries, fertilizer
producers are faced with a constantly
changing regulatory landscape. In France,
fertilizer regulations have been revised
at least 19 times since 1976 and more
changes are on the way.
Even so, the French subsidiary of Koch
Fertilizer is moving forward with plans
for major expansion in France.
In addition to the launch of Nexen™
fertilizer, the company is looking into
the development of terminals at strategic
locations serving Western Europe.
Koch Fertilizer is also pursuing expansions
in Latin America and the Pacific Rim.
Something better
“Farmers today demand something better
than 50-year-old fertilizers,” said Chase
Koch, senior vice president of Koch
Agronomic Services, the producer and
distributor of AGROTAIN® stabilizer.
“Technology does exist in the agriculture
industry today, such as high-yielding
plant genetics and GPS-guided equipment. However, there are few options in
nitrogen fertilizer, the most important
crop input.
“Nexen™ fertilizer is a step-change innovation that offers added benefits not available in commodity fertilizer, plus logistics
and application advantages,” Koch said.
“In the few months since Nexen™ fertilizer
was launched in France, the business has
seen an overwhelmingly positive response
from all channels in the value chain.
“This product could change the future of
the French fertilizer market.
“We are also implementing plans to take
Nexen™ fertilizer beyond France.”
www.kochadvancednitrogen.com
3
The importance of economic freedom
Do you think the government – or anyone else – should be able to arbitrarily
take away your home?
Is it okay with you if the value of your
savings is cut in half due to the government’s policy of quantitative easing?
Do you mind if someone else runs up a
debt for $50,551 in your name, without
your permission, then leaves you on the
hook to pay for it, with interest?
If you care about issues such as these,
then you care about economic freedom.
That $50,551, by the way, is the portion
of the federal debt owed by every citizen
of the United States.
If you look at total unfunded liabilities
(which includes promises made for
future payments) the total is a sobering
$1.05 million per citizen.
What’s at stake
What the media have called “the worst
economic recovery…ever” – especially
when it comes to new housing construction – has
affected several
Koch businesses.
Requirements for
Even so, Koch
Economic Freedom
companies still
1 Individual and property rights
provide jobs for
more than 50,000
2 An impartial and beneficial rule of law
employees and
3 Freedom to trade for wants and needs
full-time contrac4 Sound currency
tors, including
more than 15,000
5 Limited government
union members,
and are looking to
fill more than 2,400 open positions.
According to an independent study, Koch
employees and the additional jobs they
support pump more than $10 billion in
total compensation into the U.S. economy.
What happens to all those jobs if the government and its allies succeed in destroying or diminishing Koch, not to mention
many other companies?
What happens to dozens of communities if major operations are shut down
because of excessive (and often highly
partisan) regulations?
4
These are not idle questions. They are
real-life issues involving economic freedom that will affect the future of Koch
Industries, thousands of other businesses
and millions of employees.
Requirements
As mentioned on page 1, economic
freedom requires an environment where
individual and property rights are protected by a beneficial and impartial rule
of law. Freedom to trade for needs and
wants is also essential.
Government also greatly contributes
to economic freedom when it ensures
sound money and remains relatively
small. Ideally, every government should
limit itself to those activities that actually
contribute to societal well-being, such as
the protection of persons and property.
Looking at each of these requirements
and then reflecting on what’s happening
in the U.S., Europe and around the world
leads to a simple conclusion: economic
freedom is under attack.
Rule of law
Koch Industries is considering billions of
dollars’ worth
of capital
investments
in the U.S.
to grow and
improve its
businesses.
Why make those investments if new laws
or regulations further punish energyintensive industries?
“We have potential projects at many of
our facilities,” said Brad Razook, president of Flint Hills Resources. “These
would generate hundreds of millions of
dollars in construction jobs, equipment
purchases and other services. When
completed, they would also result in
lower emission rates.
“But government regulation of greenhouse gases creates great uncertainty.
Only one refinery GHG permit has
been granted during the 19 months
since that provision of the Clean Air Act
went into effect.”
For almost 50 years, Charles Koch has been an outspoken
advocate for economic freedom around the world.
Nationwide, 92 applications for major
GHG projects have been submitted by a
wide variety of industries, but only half
that many permits have been issued.
Of those 46 permits, 33 are being held up
by challenges, many by non-governmental organizations that want to eliminate
certain industries and energy sources,
such as fossil fuels.
“We see the need for these projects,” Razook said, “but if there are long delays in
getting permits, we don’t know whether
costs will have escalated or if the need
will still be there.
It’s frustrating.”
In order to be
competitive, Razook said, “it’s not
- Charles Koch
enough to know we
can eventually get a permit. The timing
should be efficient, without such delays.”
“This kind of excessive regulation guarantees the long-term decline of U.S industry,” Charles Koch said. “It’s no wonder
that many businesses aren’t hiring.
“If the government would be less intrusive and not needlessly impede, then
people would be able to innovate and
create real value using fewer resources.”
Advancing economic freedom is
the most effective way to advance
human well-being across society.
Freedom to trade
Economic freedom is rooted in the principle of free and fair trade.
This is why Koch Industries actively
opposes quotas, tariffs, subsidies and
mandates – and any other
laws or regulations that distort
the market – even when they
benefit Koch businesses.
“If other businesses can produce better products for less,
they should be free to do so
without government interference,” Charles Koch said.
“The idea that the free market
is okay for others, but that my
business should have government help – which is the essence of cronyism – continues to be one
of the most destructive notions around.
“This behavior not only undermines our
economy, but our culture and political
systems as well.”
Regardless, the U.S. government has
instituted burdensome tariffs and quotas
on imports of ethanol and sugar, major
subsidies and mandates for solar and
wind energy projects, as well as onerous
permitting requirements on projects that
generate greenhouse gases.
When a government skews the market
this way, it ends up costing consumers
billions in higher prices for goods and
services, as well as higher taxes.
Sound money?
Michael Hofmann, who will retire as
Koch Industries’ chief risk officer in
October, has spent years analyzing global
finances. He is profoundly concerned by
what he’s seen in recent years.
“The U.S. Federal Reserve, the Bank of
England, the European Central Bank and
the Bank of Japan have, between them,
drastically increased the world’s available
money to record levels. This has set the
stage for serious inflation and even bigger
debts down the road.”
Quantitative Easing
When a central bank purchases financial
assets with new money that has been
created at will for that purpose.
Most elected officials have a strong incenPreserve the pillars
tive to spend taxpayer money (even when
Rising tax rates and a dramatically higher
there isn’t any to spend). The more they
national debt are just two reasons why the
succeed in funding popular projects, the
U.S. is steadily falling on the annual index
more likely they will be re-elected.
of economic freedom.
To get that money, governments typically But it doesn’t have to be that way.
rely on four things: direct taxes, indirect
“If we really want to make the world a
taxes, borrowing and monetizing the debt.
better place,” Charles Koch said, “we must
Direct taxes, such as an income tax, are
constantly work to preserve the pillars of
obvious. Taxpayers usually know they’re freedom, prosperity and opportunity.”
paying them and how much they cost.
Koch believes that one of the biggest
These taxes tend to steadily increase over obstacles to recovering economic freedom
time, even if just by “bracket creep” due
is lack of courage.
to inflationary pressures.
Indirect or “hidden” taxes –
such as the gasoline tax in the
U.S. or Value Added Taxes on
production in Europe – are not
as obvious. Few people have
any idea of what those tax rates
are or how much they add up
to during the course of a year.
When direct and indirect taxation are no longer sufficient to
cover spending, governments
can borrow from investors
(including other nations) by
issuing bonds that are paid
back with interest.
But they can also “borrow”
from their own central bank,
which has the power to create
Koch jobs (and those they support) generate more than $10 billion in U.S. payrolls.
money at the flick of a switch.
“When your government is big and
According to Hofmann, this is how the
powerful and determined to maintain its
U.S. financed about 75 percent of its
power, it takes courage to stand up and do
trillion-dollar-plus deficit last year – by
what’s right in the face of political presborrowing from another part of governsure, cronyism and even threats.
ment, the Federal Reserve, which essentially created the extra money.
“If businesspeople don’t have the courage to stand up for what they believe,
“Many governments encourage this kind
of perverse behavior because they are big ultimately they won’t have a business,
and neither will anyone else – at least one
borrowers,” Hofmann said. “In reality,
they are defaulting on their debts, because worth having.
they are paying back investors with cur“We always strive to act with integrity,
even if it’s politically unpopular. That’s
rency that is worth less due to inflation.
why we continue to fight for economic
“They don’t want to call it defaulting or
monetizing the debt. They prefer to call it freedom and insist that all of us at Koch
‘improving liquidity,’ because that sounds – myself included – abide by our MBM®
like something positive. They also want us Guiding Principles.”
to believe it’s only a temporary measure.”
www.youtube.com/econfree | www.freetheworld.com
5
2012 EHS Excellence Conference
Larry Surginer, who retired as an INVISTA safety director on June 30, was
honored for his 45 years of exceptional
service with at least 10 different Koch
companies or affiliates.
During that time, Larry developed and
This year’s Environmental, Health and
implemented several best practices and
Safety Excellence Conference for Koch
programs that have become standard
companies, held in Atlanta, May 8-10, set
across Koch, including safe work
records for attendance, diversity and –
permitting, confined space and energy
most importantly – knowledge sharing.
control, and behavior-based safety.
There were 456 attendees at the biennial
In his opening comments, KII chairevent. Of those, 45 were from internaman and CEO, Charles Koch, remarked
tional locations as far away as China.
that: “Achieving excellence in EHS and
“Besides having almost 100 additional atall areas of compliance is more importendees than in 2010, we also had a more
tant today than it ever has been in the
diverse audience,” said Anne Monine, KII’s history of our company.
director of environmental excellence.
“There can be no doubt that Koch Indus“We saw solid respresentation from EHS, tries has been singled out for even greater
operations, legal and public and governscrutiny due to our commitment to adment affairs.”
vancing the cause of economic freedom.
“That is why we can’t afford any mistakes
Award winners
in this area of performance.”
Eight awards were presented at the conference, including one each for GeorgiaNot a drop to drink
Pacific, INVISTA, Koch Exploration,
When he was a teenager, one of Charles
Koch Pipeline and Matador Ranch.
Koch’s summer jobs included working on
Two of those were international awardthe Matador Ranch in the Rolling Plains
winners. Koch Exploration Canada is
of Texas, where a seven-year drought
based in Calgary, Alberta. INVISTA’s
made conditions almost intolerable.
Maydown site is in the U.K.
“The ground was so dry and hard we
Flint Hills Resources won two awards, one couldn’t drill postholes,” recalled Koch.
each for its Pine Bend, Minn., and Corpus “And dust storms turned the sky absoChristi, Texas, facilities.
lutely black.”
For the first time, a lifetime achievement
In extreme conditions like those, when
award was presented at the conference.
ranch profits are down or nonexistent, it
can be difficult to fund water
development and improvement practices.
Award Winners
Sixty years later, the Matador
FHR – Pine Bend....................................... Pollution control equipment reliability
Ranch is once again faced with
FHR – Corpus Christi...................................... C6H6 emission reduction initiative
a serious, multi-year drought,
Georgia-Pacific...........DSL Complete and Green by Design recovery program
but is doing so armed with
much better knowledge of
INVISTA – Maydown...............................................Site energy intensity reduction
how to conserve water while
Koch Exploration Canada ............................................................Safe winter roads
improving the environment.
Koch Pipeline .........................................................Eagle Ford pipeline expansion
That knowledge came from
Larry Surginer..........................................................................Lifetime achievement
following MBM® Guiding
Principle Six, which says,
Matador Ranch.................................................. Conserving water at the Matador
in part, “seek and use the
best knowledge.”
6
The Matador Ranch team was recognized for its water
conservation efforts. (L-R) Charles Koch, Bob Kilmer,
J.D. Russell, Tim Washington, Randy Lair and Dave
Robertson. Not shown in the photo above are Matador
team members Mickey Beshirs, Janie Campbell, Gilbert
Guerrero, John Martin, Linda Roy, Shane Taylor, Kim
Woolsey and Les Woolsey.
The Matador Ranch team began developing its new water conservation program by
asking a wide variety of experts for advice.
Among those contacted were several
universities, the Samuel Roberts Noble
Foundation, the U.S. Department of
Agriculture’s Natural Resource Conservation Service and the Texas Parks &
Wildlife Department.
Then came the hard work of sorting
through and implementing what was
learned, a process that took many months.
For ranch manager Bob Kilmer and the
Matador team, the reward for all that
hard work came when they were able to
simultaneously increase livestock production while improving wildlife habitat
management, watering ability, watering
retention and water quality.
Plenty of others have noticed that success. The Matador’s natural resource
stewardship efforts have now won local,
state and national awards.
In addition, the ranch hosts field visits
to share what the team has learned with
neighbors, helping them become better
stewards of their land and wildlife.
“I’m still praying for rain every day,”
Kilmer said, “but I feel a lot better about
our ability to work with what little water
we have.”
Looking Back
Noteworthy
Too True
The Road to Freedom – How to Win
the Fight for Free Enterprise
– Arthur C. Brooks
Friedrich von Hayek’s classic book, The Road
to Serfdom, describes the dangers of giving
governments too much economic control
over the lives of citizens.
Brooks, president of the American Enterprise
Institute, believes Americans are already in
“virtual servitude to an ever-expanding unaccountable government.”
That government, “has created a protected
class of government workers and crony corporations that play by a different set of rules
than the rest of America,
and has consequently left
the nation in hock for generations to come.”
His solution is to make a Uturn toward free enterprise,
promoting individual liberty
while still retaining a safety
net for society’s most vulnerable citizens.
This, he argues, is a moral issue, not just an
economic one.
If the United States doesn’t make a turnaround soon, Brooks warns that it will find
itself in one of two places.
The first is existence as European-style social
democracy, with even bigger government,
more taxation and less personal freedom.
The second is as a bankrupt nation facing the
bleakness of long-term austerity.
Brooks believes the first inevitably leads to
the second, as is already being seen in Ireland,
Greece and Spain.
“In America, the road to serfdom doesn’t
come from a knock in the night and a jackbooted thug.
“It comes from making one little compromise
to the free enterprise system after another.”
“The free enterprise system brings what all
people truly crave: earned success. That is
what I believe the Founders meant by the
pursuit of happiness.”
- Arthur Brooks
Fred Koch’s diploma from M.I.T
was presented June 12, 1922.
Fred’s first engineering job
was in Port Arthur, Texas.
Fred Koch in 1924, when he was
working for Charles de Ganahl.
College grad seeks job…and more
Ninety years ago this summer, when Fred
Koch graduated from the Massachusetts
Institute of Technology, he wasn’t at all
worried about finding a job.
That’s because 21-year-old Fred had
already accepted an offer to be a research
engineer for the Texas Company.
His first assignment was at Texaco’s refinery in Port Arthur, Texas, near Houston
(where he had attended the Rice Institute
for two years before transferring to M.I.T.).
Fred Koch wasn’t in Port Arthur very long
before he became dissatisfied. “The way
up the ladder in that large organization
looked very steep and difficult,” Koch said.
After just a few months, Fred decided
to move to Kansas City, Mo., where he
worked as a chemical engineer for Gasoline Products Company. It was not long
before he left that company to try his
hand as an independent consultant. That
decision truly put Fred Koch on the path
to becoming an entrepreneur.
“It takes a great deal of soul searching to
pull away from a secure job and go into the
unknown waters of business for yourself,”
Fred later said, “particularly when you
have had very little experience and feel
that your knowledge is inadequate.
“However, youth, initiative and courage
will take care of a lot.”
Even so, Fred Koch struggled in Kansas
City until he was contacted by an M.I.T.
classmate, Carl de Ganahl, whose father,
Charles de Ganahl, a Texas-born entrepreneur, wanted to build an independent
refinery in England.
It was Charles de Ganahl who gave Koch
his first big opportunity by hiring him as
chief engineer for that project.
Fred’s job was to design and build a refinery from the ground up – a task that took
him more than a year to complete.
Fred’s success in England gave him the
confidence to tackle several other large
projects in the decades ahead.
Fear of failure
Like most entrepreneurs, Fred Koch
knew what it meant to fail. His attempts
to develop fiberglass products, corporate
aircraft and multi-use real estate projects
were all unsuccessful.
In his later years, as he began handing over
management of the company to his son,
Charles, Fred Koch warned a class of business students about the common misperceptions of being an entrepreneur.
Koch knew that many of them assumed
“you can come to work when you please,
leave when you please, take a vacation
when you please and theoretically you are
your own master.
“As a matter of fact, you will probably work
longer hours and take fewer vacations. But
you won’t realize that.
“Whether you work for yourself or someone else,” Koch added, “do not be afraid
to work overtime. Always give more than
you agreed to.
“If you are a clock watcher, it shows that
you are simply not interested in what you
are doing.”
And probably not an entrepreneur.
7
Charles Koch Perspective
Chairman and CEO, Koch Industries, Inc.
In 1990, the year before the collapse of
the Soviet Union, I attended an economic conference in Moscow.
Like my father during his visits to the
U.S.S.R. in the early 1930s, I was astonished and appalled by what I saw.
Simple necessities, such as toilet paper,
were in short supply. In fact, there was
none at all in the airport bathroom stalls
for fear it would be stolen. Visitors using
the facilities had to request a portion of
tissue from an attendant beforehand.
When I walked into one of Moscow’s
giant department stores, there was next
to nothing on the shelves. For those
shoppers who were
lucky enough to find
something they actually wanted to buy,
the purchase process
was maddening and
time-consuming.
Although the government provided
universal healthcare,
I never met anyone
who wanted to stay
in a Soviet hospital.
Medical services
might have been “free,” but the quality of
care was notoriously poor.
Reality check
My experiences in the Soviet Union
underscore why economic freedom is so
important for all of us.
Nations with the greatest degree of
economic freedom tend to have citizens
who are much better off in every way.
No centralized government, no matter
how big, how smart or how powerful,
can effectively and efficiently control
much of society in a beneficial way. On
the contrary, big governments are inherently inefficient and harmful.
And yet, the tendency of our own
government here in the U.S. has been
to grow bigger and bigger, controlling
more and more. This is why America
keeps dropping in the annual ranking of
economic freedom.
8
Devil’s bargain
Citizens who over-rely on their government to do everything not only become
dependent on their government, they end
up having to do whatever the government
demands. In the meantime, their initiative and self-respect are destroyed.
It was President Franklin Roosevelt who
said: “Continued dependence on [government support] induces a spiritual
and moral disintegration fundamentally
destructive to the national fiber. To dole
out relief in this way is to administer a
narcotic, a subtle destroyer of the human spirit.”
Businesses can become dependents, too.
If your struggling car company wants a
government bailout, you’ll probably have
to build the government’s car – even if it’s
a car very few people want to buy.
Repeatedly asking for government help
undermines the foundations of society
by destroying initiative and responsibility. It is also a fatal blow to efficiency
and corrupts the political process.
When everyone gets something for nothing, soon no one will have anything, because no one will be producing anything.
Cronyism
Under the Soviet system, special traffic
lanes were set aside for the sole use of
officials in their limousines. This worsened driving conditions for everyone
else, but those receiving favored treatment didn’t care.
Today, many governments give special
treatment to a favored few businesses
that eagerly accept those favors. This is
the essence of cronyism.
Many businesses with unpopular products
or inefficient production find it much
easier to curry the favor of a few influential
politicians or a government agency than to
compete in the open market.
After all, the government can literally
guarantee customers and profitability by
mandating the use of certain products,
subsidizing production or providing protection from more efficient competitors.
Cronyism enables favored companies to
reap huge financial rewards, leaving the
rest of us – customers and competitors
alike – worse off.
One obvious example of this involves
wind farms. Most cannot turn a profit
without the costly subsidies the government provides. Meanwhile, consumers
and taxpayers are forced to pay an average of five times more for wind-generated electricity.
We see far too many legislative proposals that would subsidize one form of
energy over another, penalize certain
emissions from one industry but not
another, or place protective tariffs that
hurt consumers.
Legacies
Karl Marx famously said: “From each according to his abilities, to each according
to his needs.”
The result of this approach is not equality, but rather a lowering of everyone’s
standards to some minimal level.
Some people worry about the disparity of
wealth in a system of economic freedom.
What they don’t realize is that the same
disparity exists in the least-free countries.
The difference is who is better off.
Under economic freedom, it is the
people who do the best job of producing
products and services that make people’s
lives better.
On the other hand, in a system without
economic freedom, the wealthiest are the
tyrants who make people’s lives miserable.
As a result of this, the income of the
poorest in the least-free countries is onetenth of what it is in the freest.
Elected officials are often asked what
they would like as their legacy. I’m never
going to run for office, but I can tell you
how I would answer that question.
I want my legacy to be greater freedom,
greater prosperity and a better way of
life for my family, our employees and
all Americans. And I wish the same for
every nation on earth.
www.economicfreedom.org