Charles Koch on Cronyism: More for the Record (Washington Post interview)

By Robert Bradley Jr. -- August 15, 2016

“I’d like to see a rebirth of the country — go back where there’s equal rights for everybody, as I said, and that people succeed to the extent that they help other people improve their lives. To lead toward a society that maximizes peace, civility, and well-being for everyone.”

A series of posts at MasterResource has examined the views on business/government relations by classical-liberal entrepreneur Charles Koch, who has become a rare voice for government-neutral business relations. These post include:

Charles Koch: An Entrepreneur for Liberty

‘Good Profit’: Charles Koch on Cronyism (Part 2)

Charles Koch on Cronyism (Part 1)

Who is Charles Koch? (A builder of business and critic of political capitalism)

Charles Koch’s most recent thoughts on cronyism have been provided in an interview by the Washington Post’s Jim Tankersley (misleadingly titled “‘I don’t like the idea of capitalism’: Charles Koch, unfiltered.”). The excerpts below cover the cronyism parts of that interview.
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Jim Tankersley: I’m really interested in your interest in, over the last 25 years, in the way that you view events and the economy. Is there anything that’s happened, especially in the last 15 years, this time which has been very difficult for a lot of working Americans. Is there anything that has changed in terms of how you think the economy works based on the evidence that’s come in?

Charles Koch: ….  Now the tragedy, now well, and just the extent to which that was applied in this country is what made us the most successful country in the history of the world. The tragedy was that it wasn’t consistently applied. Like it wasn’t applied at all for blacks and Native Americans, and what a tragedy that’s been.

And not only for them but for the country as a whole. It was only partially applied for women and for certain immigrants such as the Chinese. And it wasn’t applied to get rid of corporate welfare and cronyism. People who had special connections got special deals from the beginning.

So all of those violations of what the Declaration of Independence expressed, have led to the problems we have today. So, the sins of the fathers are visited upon the sons for seven generations, or much longer. Forever.

And so I’d like to see a rebirth of the country — go back where there’s equal rights for everybody, as I said, and that people succeed to the extent that they help other people improve their lives. To lead toward a society that maximizes peace, civility, and well-being for everyone.

TANKERSLEY: What do you think went off the rails? What happened that you think created that widening two-tiered [system] that you described with the welfare for the wealthy and lack of opportunity for other folks?

KOCH: Well, for one thing, we have to blame the business community. The business community, [sarcastically] this is tough to satisfy your customers. I mean they are disloyal, ignorant, who constantly want something better, and if you don’t, they leave you. This is horrifying; we’ve got to stop it. And then these disadvantaged people, I mean, they can’t do anything, so we give them some stuff, and we don’t want them coming in our businesses and bringing new competition and taking away our customers, so we’ve got to stop that, and then we don’t want anybody doing anything that’s unsafe, so we got to kind of put the lid on innovations, because every new thing, we’re not quite sure how that’s going to work out.

KOCH AIDE: You’re saying that’s what’s in the mind of the cronyists?

KOCH: Well, no, I’m beyond — well, it’s in part cronyists. But then it’s cronyism in education, like, K-12, a lot of it, these institutions are being run for the benefit of the bureaucracy and the teachers rather than the students. And the schools and universities should be run — how do I help each individual fully develop his or her capabilities and understand what they’re good at, what they can be successful at, and teach them the values and principles that will enable them to make a contribution and be successful?

So, we have cronyism there, too. It’s everywhere. So, I mean, that’s huge, but I think it starts when you start out violating your principles, then, that’s what I said, this pragmatism, or whatever, it gets worse.

TANKERSLEY: It strikes me that so many Americans feel that they can’t do the thing that they are best at. Whether it’s, they worked in a factory with their hands, and now that job’s not here, or they studied a particular discipline, or they can’t start the business they want to, because for whatever reason, entrepreneurship has declined over the last few years.

KOCH: I mean one thing, you asked about the banking system, I mean the regulations are making these big banks bigger and bigger, and the community banks are being wiped out. Like, in the last several decades, the five biggest banks have gone from 16 percent market share of deposit storage, to over 50 percent.

And thousands of community banks who provided the financing for people getting started are wiped out. And then the regulations are such that they’re having a hard time. I mean, like mortgage lending — boy, if you don’t do it just right, then you push that on this poor person. They don’t have to repay you, and so banks go out of that.

So I mean, the whole trend is either for the system of control, and the problem is that one intervention — they don’t look at the secondary consequences, so then that needs a new intervention, and that creates other secondary consequences. I mean, it’s like, I hate to always pick on George Bush, but he meant well and I think has good values, but he forgot that a market system is not a profit system, it’s a profit-and-loss system.

And when you take away that discipline, you just tell people: “Well, you will gain, but you won’t lose. We’ll protect you against loss. It’s a crazy thing. So look at what he did on housing. It was already there, but he built it up further, so the average inflation-adjusted price of houses doubled historically, and the speculation and corruption went crazy because it was largely guaranteed against losses.

I was visiting with someone after this, and he said, he was telling me that he was buying this vacation home, in Arizona, and so he went to this mortgage broker and said, “I’d like to borrow this much,” and the mortgage broker said, “Oh, you can borrow a lot more than that” — “Oh, okay” — and so when he got all the final documentation back, the mortgage broker had put another house on the lot than what was really there. “Well, I let them [unintelligible] your house, than what was really there.”

I mean, that kind of stuff was rampant. And then, so that was ignoring basic principles on what makes people’s lives better and what makes the system work. And then we compounded it by, saying where we got this mess now, from the collapse of the housing boom, which helped, and there was also, to a certain extent, in autos, because they were subsidizing those in a big way.

So, we created this Great Recession, and then everybody who got in trouble, we’ve got to bail out. Okay, well then we have a deal — if I get in trouble, all of the poor and middle class are going to bail me out, so once again, it just compounded this corporate welfare and violated the principle of profit and loss.

TANKERSLEY: So you would have not done the bailout?

KOCH: No. I wouldn’t have done any of it. But the problem is you get to a certain point and the eggs are scrambled, and it’s your job unscrambling them. Let’s stop scrambling the eggs.

TANKERSLEY: Has Obama been worse than Bush was on those principles?

KOCH: Yeah, I think he’s built on it. I mean, as I’ve said, Bush was — I think we just keep adding, and that’s our problem. We almost never subtract. We keep adding these boondoggles, and these violations of the basic principles of equal rights — certain people have more rights than others — it’s like “Animal Farm.” The pig says that we all have equal rights, but some have more rights than others…..

TANKERSLEY: Well, the other critique that they level is that this is, that you are promoting policies that are beneficial to you financially. Freer markets help the business side, so promoting them academically is in your business interest.

KOCH: Are you kidding me? That’s why there’s so much corporate welfare, because they all want a free market? No, I started in the late ’70s an organization called Council for a Competitive Economy. You’re probably —

TANKERSLEY: I’m familiar.

KOCH: You’ve heard about that. I got Milton Friedman to be chairman of my advisory board for a while, and I’d send these letters out to business people, and the typical letter I’d get back, “Boy, I agree, I think we need a more open economy, more free enterprise, but it doesn’t work for my company.” I remember one, who was a jeans manufacturer, and he said all that, but he says: “But if I had to compete with all these foreign manufactures, I’d go out of business. And then who would make the uniforms for our boys when we go to war?”

So that’s when I saw Rich Fink, and I said: “Rich, this isn’t working. Do you have a better idea?” And he says: “Yeah, we can’t depend on business people. We have to reach the citizens and show them they’re the ones getting screwed by this stuff. So,” he said, “I’ll take a leave of absence from George Mason [University], if we can change it over to Citizens for a Sound Economy.” So that’s — he left, and set up that to appeal to citizens. And so then we were able to accomplish some things.

TANKERSLEY: You know, it strikes me because, you talk about business, and I’ve spent a lot of time talking to business leaders over the past few weeks. They’re very frustrated with the current political environment.

KOCH: No kidding. They caused it. No, I mean they blame the unions and others, well, the business community’s much bigger, and they’re the ones who are pushing this. Who’s pushing all this occupational licensure? It isn’t just big business, it’s the local — God, we shouldn’t be doing this.

Mark Holden, our general counsel, sent op-eds around communities around the country. We got more hate mail on that than anything. We can’t just let anyone in our business, you know? We’re interior decorators, or we’re yoga instructors or something. We’ve got to keep these people out. I mean, they won’t be safe or they won’t know what they’re doing. Well, how about letting the consumer decide?

TANKERSLEY: Do you — when you look at the political moment right now and the populist anger in particular — people who are angry about free trade, people who are angry about immigration, in some things, very basic principles of free markets — what do you think has happened?

KOCH: I think, and I’m reminded of a Dickens quote that opens “A Tale of Two Cities” — It’s the best times, it’s the worst of times. It’s an era of wisdom; it’s an era of foolishness — so we have the most fabulous opportunity with technologies out there, if we had permission-less innovation and to make people’s lives better, in every dimension, and yet we’re doing all this crazy self-defeating stuff and we have no Republic of Science and in the political — it’s just name-calling and shouting, and mischaracterizing what the other person stands for….

TANKERSLEY: Do you feel like you are making progress, though, in other areas like criminal justice, where you have been fostering this debate for a long time?

KOCH: Right. On the policy side, that’s our idea: to build alliances, to build the Republic of Science, right? In a policy area where we can find people with very different ideas but we agree on an issue. So we will work — it’s like Frederick Douglass said: “I will unite with anyone to do good, and no one to do harm.” Sometimes it gets harder to find anyone to unite with, but that’s what we do.

We hope we can find more people across the board to unite with on fighting this corporate welfare and occupational licensure that [Obama senior adviser] Valerie Jarrett has told Mark Holden that they are interested and they think it is way overdone even though they agree with some of it. But the problem is that it’s at a state and local level. I mean, what are there? Over 1,000 occupations now that some community or some state has all these restrictions on, which makes it very difficult when people don’t have anything to go into? But, that is our model, and to work more at the state and local level in that regard, because it is so tough to crack anything at the national level.

TANKERSLEY: Do you worry at all about inequality as a discrete phenomenon from mobility?

KOCH: Yeah, I worry about it when it is caused by corporate welfare. It’s like we treat employees here. We want to reward you not only monetarily, but including the value you create here, because we want you to create more value. We don’t want to put a ceiling on it because we don’t want you to put a ceiling on the value. And that’s what we want in society. If somebody is doing more and more to make other people’s lives better, have them make all they can, if that’s what drives them, because that’s what we want.

If they make it through by rigging the system, then that’s horrible, and that’s a good part of the disparity we have. Whereas the median income — which I think is a much better metric on well-being than GDP, hasn’t gone up in the last decade — and productivity has barely moved. And I think it is because of this corporate welfare and the Fed. So what we see happening is that because of that combination — free money to big companies like ours or established companies and the difficulties in getting permits to do something new with all of the handicaps on innovation — that rather than going in and investing in increasing productivity, it is investing in buying other companies.

So we are just moving the chairs around and spending huge amounts of money rather than having them go in making people’s lives better….

TANKERSLEY: What gives you optimism looking ahead on this particular economic issues?

KOCH: It’s the technology, everywhere. We believe innovation comes from recombining existing technology and different perspectives in innovative ways. You look at software and what it’s doing, with Uber and Airbnb — we’ve gotten in that area in information technology to create smart products and smart processes here, to make our plants safer.

Georgia-Pacific is working on the bathroom of the future, have it be a better experience, lower cost, lower energy consumption. We decided biotechnology was at a point where we could make economically make chemicals biologically using CO2 and hydrogen as raw material. We’ve had some breakthroughs there — we’re just to the laboratory scale, so we have a long way to go.

And then agriculture and education, I mean just if you allow all the technology there, what you can get on the Internet there, and be more tutors, and help guide the kids and let them have the best teachers in the world … and medicine … being able to remote diagnosis, if you just allow innovation and have the FDA not make it almost impossible to develop a new drug, that costs a fortune and cost create this huge structure of pricing. Anyway, across the board is this potential.

So I think we can grow — rather than median income be stagnant, I think it could grow 6 or 7 percent per year….

TANKERSLEY: So entitlement for the wealthy, what does that look like?

KOCH: All the corporate welfare, yeah, it goes from cash payments to debt, to regulations on the competitors, to restrictions on trade, to mandates. You name it, anything so that business doesn’t have to do a better job of creating value for others — they can just get the system in their favor.