Voices of Freedom
Capitalism: A Moral Philosophy?
“Our elected officials would do well to remember that the most prosperous countries are those that allow consumers-not governments-to direct the use of resources.”
More than once in my zeal to promote my latest idea in the marketplace, I have found myself in an awkward position-you know the proverbial “mouth in motion before the brain is engaged” phenomenon.
The day I “discovered” Koch Industries was one of those times. As an independent retailer owner in a small town, I had purchased some convenience store/gas stations in a neighboring community. Always dreaming about ways to increase customer traffic and build sales and loyalty, I had begun to think about gas pumps and grocery stores-together.
Characteristic of my personality and temperament, I began to act on the hunch that this might work. One of my managers suggested I call Koch Industries and float the idea-he knew they were in the refinery business and might be a contact for fuel.
Without further adieu (or research for that matter), a conference call was held with Koch’s fuel marketing team. As conference calls go, the cordial executive introduced me as a retailer with an idea to tie gas and grocery together and I was off to the races. After about thirty minutes, I took a breath, and the question was posed, “Gary, do you know anything about Koch Industries.?”
The pit in my stomach told me I had done it again. Ah, no, not really. Just that they are in the oil refining business. The very polite moderator went on to give me the stats on Koch and I felt like a fool. As I began to apologize, one of the others on the call stopped me in mid-sentence with this, “We’ve been researching this for a year and in 30 minutes you just articulated our entire business plan off the top of your head.” The call ended with a simple question, “How soon can you be in Wichita?”
Koch Industries-at the time was the second largest privately held company on the North American Continent at roughly 30 billion dollars in annual revenues. Rather than chiding me for my audacity and presumption, they offered me a consulting contract for the next two years. True to Koch’s philosophy, belief in the power of an idea arising out of economic necessity in a free society is a much better risk than a bureaucratic mandate.
Of course Koch Industries is in the news of late. Often touted by the left as a potential conspirator against the government, has consistently followed their commitment to ”support only policies,” as Charles Koch says in a WSJ opinion published March 1, 2011, ” that enhance true economic freedom.”
It’s a stubborn principle which seems to keep coming up. Statistics show that society consistently benefits-at all levels-from greater economic freedom. Freedom from excessive taxation and regulation by the government leads to more opportunities for the businessman or entrepreneur to try new ideas to promote their business.
Charles Koch, the CEO of Koch Industries says it like this in the preface to his 2007 book, “The Science of Success.”
“Through my work in building a great company and my study to identify the principles that lead to prosperity and societal progress, I encountered the ideas of …good thinkers which fit my observations in the natural world. I learned that prosperity is only possibly in a system where property rights are clearly and properly defined and protected, people are free to speak, exchange and contract, and prices are free to guide beneficial action”
In other words, freedom to succeed involves the risk of failure. If the product doesn’t sell, it is not the right product. Period. If an idea is a good one, it will succeed; if it isn’t it should be changed.
Whether or not one agrees with Koch’s philosophy of free market economics and a smaller, smarter government, it is hard to argue with the numbers. Roughly 12 years after I first “met” Koch Industries, they have grown to become the largest privately held company on the planet and 80 billion dollars in sales, providing upwards of 50,000 US based jobs.
In a world where both Republicans and Democrats have failed to address the issues necessary to succeed in balancing the budget, Koch industries continues to invest in a “variety of intellectual and political causes working to address these problems and provide sustainable solutions.” In a word, to create incentive and opportunities to create wealth rather than to heap a crippling tax burden on the productive members of society.
I experienced this first hand some twelve years ago as an independent retailer
with an idea-the Koch brothers put their money where their philosophy lies..
Just one more voice in the fan club of freedom.
God Bless America
Wall Street Journal – March 1, 2011
Why Koch Industries Is Speaking Out
Crony capitalism and bloated government prevent entrepreneurs from producing the products and services that make people’s lives better.
Years of tremendous overspending by federal, state and local governments have brought us face-to-face with an economic crisis. Federal spending will total at least $3.8 trillion this year-double what it was 10 years ago. And unlike in 2001, when there was a small federal surplus, this year’s projected budget deficit is more than $1.6 trillion.
Several trillions more in debt have been accumulated by state and local governments. States are looking at a combined total of more than $130 billion in budget shortfalls this year. Next year, they will be in even worse shape as most so-called stimulus payments end.
For many years, I, my family and our company have contributed to a variety of intellectual and political causes working to solve these problems. Because of our activism, we’ve been vilified by various groups. Despite this criticism, we’re determined to keep contributing and standing up for those politicians, like Wisconsin Gov. Scott Walker, who are taking these challenges seriously.
Both Democrats and Republicans have done a poor job of managing our finances. They’ve raised debt ceilings, floated bond issues, and delayed tough decisions.
In spite of looming bankruptcy, President Obama and many in Congress have tiptoed around the issue of overspending by suggesting relatively minor cuts in mostly discretionary items. There have been few serious proposals for necessary cuts in military and entitlement programs, even though these account for about three-fourths of all federal spending.
Yes, some House leaders have suggested cutting spending to 2008 levels. But getting back to a balanced budget would mean a return to at least 2003 spending levels-and would still leave us with the problem of paying off our enormous debts.
Federal data indicate how urgently we need reform: The unfunded liabilities of Social Security, Medicare and Medicaid already exceed $106 trillion. That’s well over $300,000 for every man, woman and child in America (and exceeds the combined value of every U.S. bank account, stock certificate, building and piece of personal or public property).
The Congressional Budget Office has warned that the interest on our federal debt is “poised to skyrocket.” Even Federal Reserve Chairman Ben Bernanke is sounding alarms. Yet the White House insists that substantial spending cuts would hurt the economy and increase unemployment.
Plenty of compelling examples indicate just the opposite. When Canada recently reduced its federal spending to 11.3% of GDP from 17.5% eight years earlier, the economy rebounded and unemployment dropped. By comparison, our federal spending is 25% of GDP.
Government spending on business only aggravates the problem. Too many businesses have successfully lobbied for special favors and treatment by seeking mandates for their products, subsidies (in the form of cash payments from the government), and regulations or tariffs to keep more efficient competitors at bay.
Crony capitalism is much easier than competing in an open market. But it erodes our overall standard of living and stifles entrepreneurs by rewarding the politically favored rather than those who provide what consumers want.
The purpose of business is to efficiently convert resources into products and services that make people’s lives better. Businesses that fail to do so should be allowed to go bankrupt rather than be bailed out.
But what about jobs that are lost when businesses go under? It’s important to remember that not all jobs are the same. In business, real jobs profitably produce goods and services that people value more highly than their alternatives. Subsidizing inefficient jobs is costly, wastes resources, and weakens our economy.
Because every other company in a given industry is accepting market-distorting programs, Koch companies have had little option but to do so as well, simply to remain competitive and help sustain our 50,000 U.S.-based jobs. However, even when such policies benefit us, we only support the policies that enhance true economic freedom.
For example, because of government mandates, our refining business is essentially obligated to be in the ethanol business. We believe that ethanol-and every other product in the marketplace-should be required to compete on its own merits, without mandates, subsidies or protective tariffs. Such policies only increase the prices of those products, taxes and the cost of many other goods and services.
Our elected officials would do well to remember that the most prosperous countries are those that allow consumers-not governments-to direct the use of resources. Allowing the government to pick winners and losers hurts almost everyone, especially our poorest citizens.
Recent studies show that the poorest 10% of the population living in countries with the greatest economic freedom have 10 times the per capita income of the poorest citizens in countries with the least economic freedom. In other words, society as a whole benefits from greater economic freedom.
Even though it affects our business, as a matter of principle our company has been outspoken in defense of economic freedom. This country would be much better off if every company would do the same. Instead, we see far too many businesses that paint their tails white and run with the antelope.
I am confident that businesses like ours will hire more people and invest in more equipment when our country’s financial future looks more promising. Laying the groundwork for smaller, smarter government, especially at the federal level, is going to be tough. But it is essential for getting us back on the path to long-term prosperity.
Mr. Koch is chairman and CEO of Koch Industries, Inc. He’s the author of “The Science of Success: How Market-Based Management Built the World’s Largest Private Company” (Wiley, 2007).
As printed in The Wall Street Journal