The Stalinist Roots of the Koch Empire

by Matthew Payne on November 12, 20112 comments

Uncle Joe with trademark prop pipe

So I was reading a fine little post by Digby on the violence and expropriation that lies behind the Koch Brothers’ “libertarian empire”–essentially Dear Ol’ Granddad Harry got free title to a whole lot of railroad land from his buddy, the railroad magnate and Indian killer, Grenville Dodge.  Oh course, as Jonathan Schwartz at A Tiny Revolution emphasizes in summarizing Yasha Levine’s story, the libertarian “invisible hand” of the market involved defrauding investors, murdering and expropriate indigenous peoples, receiving a massive government hand-out in the form of land grants and propaganda work for “business interests” in a rabidly right-wing newspaper.  But for me the real issue is the real estate speculation this guy made his wealth on.  He profited immensely from flipping the largesse he received from the railroads while the people he sold to, mostly dirt farmers, suffered mightily with onerous mortgages and rack-rents.  While Koch pere prospered the town he jacked up as some sort of North Texas mirage stagnated and declined–the Dust Bowl nearly killed it off.

The real story of the Koch Empire is with Grandpa’s son, John Birch Society co-founder and committed Stalinist, Fred.  This is where the Yasha Levine, of the iconoclastic and defunct eXile (nursery also of Matt Taibbi) really shows so-called journalists how to do it.  Fred, you see, got his money from Joe Stalin.  I well know this little nugget since I was exposed to the Koch-cult back in the aughts when my wife’s company was bought by their little cabal and, as a senior lawyer, she was given a reading list of CATO-approved agitprop to understand their–ahem, business philosophy.  It helped to drive her right out of the corporate world altogether.  That it mirrored the worst sort of neoliberal nonsense I had been exposed to at the University of Chicago goes without saying.  That I had seen the name “Koch” before in my research into the vicious Stalinist industrialization drive of the 1930s probably requires some explanation.  You see, whatever the brutality of communist autocracy which, during the Five-Year Plan, was starving millions of its own people, impoverishing and disempowering its workers, silencing its scientists and murdering its dissidents–western capitalism saw this government as a profit center.  Stalin was paying good money for western industrial infrastructure (with gold dug by GULag convicts in Kolyma and wheat stolen from farmers to be sold on the open market–if Stalin was a communist, he was a very CEO-style communist).  Western engineers and businessmen who loathed Communism in theory flocked to the USSR to be part of the bonanza (of course, there was no money for such contracts at home since the “gold standard” tight money policy the libertarians love had destroyed the western economy).  Fred came too. 

Fred was a clever MIT-trained engineer who had come up, with his classmate, Winkler, with a better way to get gasoline from crude.  He made the mistake of not allowing the oil refining cartel to steal it (his Daddy was much more politically astute about these sorts of things) and his company was frozen out of the market by what we would now call patent trolling.  Having been screwed by capitalism as it really worked, Fred took his innovation to the one guy in the world who didn’t give two shits about property rights, Joe Stalin, and he was off to the races.  Fifteen oil refineries and a five million dollar contract later, Fred pocketed a cool half-million (a pile of money in the Depression) and had the seed fund for his oil pipeline empire.  Fred was not a minor player in this story–his refinery technique was crucial in the building of the great refinery centers of Tuapse, Batumi, Baku and, especially Grozny.  It was those refineries at Grozny which Hitler was trying to grab in the summer of 1942 for which the Battle of Stalingrad was the flanking effort.  The capacity at Grozny quite literally fueled the Red Army and made possible the survival of the Soviet Union as Koch-cracked gasoline went into T-34 tanks.  Not having that oil doomed Hitler’s Panzers.  Had Koch not built the refineries, surely someone else would have (although the technology would not have been as efficient) but ol’ Fred certainly did not flinch at taking advantage of a business opportunity which later insured the survival of those hated commies.

And its hard to see why Koch wouldn’t like Stalinism–a brutal police state that smashed independent unions and ruthlessly sacrificed citizen’s well-being for the benefit of a small elite and, most importantly, guaranteed profits.  What’s not to like?  The Koch mythology is that Daddy hated the Reds.  Fred himself wrote as much in his 1960 pamphlet A Businessman Looks at Communism, but as Levine points out, there is quite a gap here in Koch’s anti-communism from when he left the USSR until he started to criticize it (ironically enough, during Khrushchev’s Thaw when conditions were improving for most people).  He inveighed against the misery of Stalinist industrialization in the 1950s but was strangely silent about it in the 1930s.  And Fred knew bad things were happening–the Grozny refineries were built in the aftermath of the Soviets suppressing a massive uprising in Chechny, during the ethnic cleansing of the Kuban Cossacks and devastating famine in the Northern Caucasus and, hard to miss!, fellow Western engineers being criminally charged in the kangaroo-court of the Metro-Vickers Trial.  But why would Fred care?  He took the money and ran–all the way to the fire-sales of distressed assets in the depressed oil patch back home.  Oddly, the Fred and Mary Koch Foundation’s history blurb passes over this little incident in silence–one would think nothing much happened to the intrepid Koch founder between 1925 and 1940. 

The rantings in Koch’s 1960 screed are actually quite lucid and damning once he gets away from Bircher exegesis and recounts the horrors of the Soviet Union he knew–but as Levine points out, those horrors did not stop Koch from scurrying back to Moscow on a “goodwill trip” (i.e., lobbying campaign) once the USSR opened itself up to foreign direct investment (or seemed to) in the mid-1950s.  Fred loathed Communism alright, whenever it was denying him fat government contracts.  When such contracts were available, Fred kept his mouth shut and took the money.  I can certainly find no evidence of public denunciation of the regime that had made him rich prior to the late 1950s and I strongly suspect the Koch fils would have made such a record available long ago if it existed.

So, here we have the Randian paradigm of libertarian meritocracy–the Koch family fortune is built on corporate shilling, government handouts, real estate swindles and contracts from corrupt and brutal despots.  Sounds about right to me.  So, when some neo-Bircher glibertarian class warrior argues about self-reliance, just use your magic decoder ring and recognize self-reliance means relying on the kindness of totalitarian dictators.

Oh, by the way–the recent phenomenal growth of Koch Industries?  How was that maintained?  Well, given this tale of violence and expropriation (though admittedly, sometimes through second-parties such as Dodge and Stalin) you probably know the answer already.  The Koch Brothers made their money the old-fashioned way–they stole it.


Nick Glossop on November 12, 2011 at 12:56 pm. #

Excellent piece, Matt. Any parallels to by drawn with the Life and Extraordinary Adventures of Prescott Bush?

Matthew Payne on November 12, 2011 at 3:22 pm. #

Well, Prescott was a banker with a taste for Nazis and treason who worked fro Harriman, no fan of Stalin. Koch was an engineer without qualms who liked to call treason and didn’t mind taking Stalin’s money. As much as I’d consider Koch a hypocrite, I don’t think I’d call him a traitor. Prescott, well, that’s quite another kettle of fish.