Monday, September 10, 2012

The dangers of crony capitalism

The Koch brothers are routinely vilified by the left, but they are shining examples of how hard work and informed risk taking have made the U.S. a rich and prosperous nation. They didn't build an empire by being stupid, and they didn't build it by cozying up to government; on the contrary, they built it themselves.

Some years ago I had the great privilege of visiting Koch Industries' headquarters, improbably located in the middle of a corn field outside of Wichita. After spending two hours matching wits with some senior finance people, I came away inspired. This was one of the most intense and gratifying meetings of my career, mainly because the competitive energies of this dynamic organization were palpable, and the people were driven to excel. I've been in similar situations in numerous large corporations in my life, and these folks ranked among the very best I've encountered.

In an article in today's WSJ entitled "Corporate Cronyism Harms America," Charles Koch discusses the problems that arise when businesses seek profits from government, rather than from the free market, and when government is only too happy to oblige. This philosophy ought to transcend partisan politics since it is just simple common sense. Some excerpts follow, but for a great education, do read the whole thing:

Businesses have failed to make the case that government policy—not business greed—has caused many of our current problems. To understand the dreadful condition of our economy, look no further than mandates such as the Fannie Mae and Freddie Mac "affordable housing" quotas, directives such as the Community Reinvestment Act, and the Federal Reserve's artificial, below-market interest-rate policy.
Far too many businesses have been all too eager to lobby for maintaining and increasing subsidies and mandates paid by taxpayers and consumers. This growing partnership between business and government is a destructive force, undermining not just our economy and our political system, but the very foundations of our culture.
The role of business is to provide products and services that make people's lives better—while using fewer resources—and to act lawfully and with integrity. Businesses that do this through voluntary exchanges not only benefit through increased profits, they bring better and more competitively priced goods and services to market. This creates a win-win situation for customers and companies alike.
Trouble begins whenever businesses take their eyes off the needs and wants of consumers—and instead cast longing glances on government and the favors it can bestow. When currying favor with Washington is seen as a much easier way to make money, businesses inevitably begin to compete with rivals in securing government largess, rather than in winning customers.
To end cronyism we must end government's ability to dole out favors and rig the market. Far too many well-connected businesses are feeding at the federal trough. By addressing corporate welfare as well as other forms of welfare, we would add a whole new level of understanding to the notion of entitlement reform.


Bill said...

I know we're still close to the Democratic convention, but it's depressing to see that Obama is ahead of Romney by 5 points in Rasmussen's poll today and that he's now enjoying an approval rating of 52% even after that horrible jobs report on Friday. I guess folks really want their free stuff and partnership with the government.

Cabodog said...

Common sense? That seems to no longer apply these days...

marmico said...

I guess folks really want their free stuff and partnership with the government.

You are innumerate!

Lawyer in NJ said...

David Koch:

“I think it’s essential to be able to achieve spending reductions and maybe it’s going to require some tax increases,” he said. “We got to come close to balancing the budget; otherwise, we’re in a terrible deep problem.”

Sage words.

Tom said...

What is most appalling to me is how the democrats and media have successfully framed any opposition to Obama as racism, when it is all about his disastrous policies. And how he wins on the likability scale is beyond me. Has he given a speech in the last four years that has not pitted one group of Americans against another? I’d like to know. Here is the best line from his DNC acceptance speech: “But when Governor Romney and his allies in Congress tell us we can somehow lower our deficit by spending trillions more on new tax breaks for the wealthy - well, you do the math.” So in other words, people being able to keep the money that they themselves have earned is the federal government “spending money”. Liberals do believe that all wealth belongs to the government and they get to decide how much of it you get to have. I’m not in favor of new tax cuts either because I want tax reform and a much simpler and fairer system, but the attitude in that statement is very telling. It's depressing how many Americans have apparently bought into socialism.

Public Library said...

"...the Federal Reserve's artificial, below-market interest-rate policy."

At least someone has the brass to call it what it is...

Sad and Angry said...

Ok, I am not sure of the veracity of this, but I remember T. Boone Pickens vilifying the Koch Brothers for trying to artificially keep natural gas down in price due to it's importance for making fertilizers. T. Boone is no crazy liberal, and I don't want to be cynical, but it wouldn't be the first time that someone professed free market answers while also sucking at the teat of government favors.

Unknown said...

"A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship."
-Alexander Tytler, 1747 - 1843

Anonyx said...

Marmico, just what do you think your chart says? Please educate us innumerates, as I read it and see a government that has grown massively in the time scale provided, and only dipped slightly in the past few quarters (perhaps as it's been hard to continue to repeat the out of control "stimulus").

Rob said...

OK, that's it Scott, you just lose all credibility and look ridiculous with these kind of politically-motivated rantings ! Your complete lack of nuance, usually expressed in the form of overly rosy economic predictions, just looks naive, blinkered and downright immoral when you start cheerleading for people like the Koch brothers.

A summary of the Bloomberg piece on Koch, published in October last year:

"A Bloomberg Markets investigation has found that Koch Industries — in addition to being involved in improper payments to win business in Africa, India and the Middle East — has sold millions of dollars of petrochemical equipment to Iran, a country the U.S. identifies as a sponsor of global terrorism.

And here’s the conclusion, written in strikingly pointed terms for a staid outlet like Bloomberg:

For six decades around the world, Koch Industries has blazed a path to riches — in part, by making illicit payments to win contracts, trading with a terrorist state, fixing prices, neglecting safety and ignoring environmental regulations. At the same time, Charles and David Koch have promoted a form of government that interferes less with company actions."

Rob said...

"Sally Barnes-Soliz, who’s now an investigator for the State Department of Labor and Industries in Washington, says that when she worked for Koch, her bosses and a company lawyer at the Koch refinery in Corpus Christi, Texas, asked her to falsify data for a report to the state on uncontrolled emissions of benzene, a known cause of cancer. Barnes-Soliz, who testified to a federal grand jury, says she refused to alter the numbers.

“They didn’t know what to do with me,” she says. “They were really kind of baffled that I had ethics.”

Rob said...

"Koch-Glitsch told employees in 2006 that the company was winding down business in Iran, Bentu says. At that point, he says, his bosses still asked him to work on Iran bids. He says he told them he was no longer willing to sign off on such work, leading to arguments between Bentu and his managers.

‘Totally Betrayed’

Bentu says he felt dismayed because Koch Industries clearly tells all of its employees around the world that integrity is the company’s No. 1 value.

“You feel totally betrayed,” Bentu says. “Everything Koch stood for was a lie.”"

Rob said...

"Former company employees testified that Koch Industries trained them to steal ... “You used every available tool to mismeasure the crude oil in Koch’s favor,” says Dubose, who is now retired."

Scott Grannis said...

If not being perfect were a disqualification for public office, Washington would be empty—on both sides of the aisle. If businesses didn't maximize profit, our living standards would be far lower today. Few people have created as many jobs and advanced living standards by as much as the Koch brothers. And in case you were unaware, Bloomberg news has a strong liberal bias.

Let me be clear that both parties are guilty of crony capitalism, as are many businesses. It is up to voters to end this sinister practice.

Bill said...

Yes, our favorite Troll Marmico ignores the CBO data which shows that government spending as a percentage of GDP is on the rise and headed to unsustainable levels.

Anonyx said...

Bill, Marmico's own link demonstrates it, and he's calling someone else innumerate. I read Scott's blog regularly, but rarely dip into the comments, so I'm not familiar with Marmico, but Marmico's argument is laughable.

Rob said...

"Let me be clear that both parties are guilty of crony capitalism, as are many businesses."

So once again the more nuanced view has to be dragged out of you !!! When will u learn to think more before you shoot your mouth off ?!

You were just waxing lyrical about how amazing, genius, fantastic Koch is. Now following my quotations from (evil liberal) Bloomberg you manage to concede that Koch might not be so perfect after all. Just not as "imperfect" as the Democrats.

You need an editor Scott to make u think more carefully before screaming from your soapbox.

Rob said...

To clarify my last post: Are u saying that Koch has never been part of crony capitalism ?! If it paid bribes, rigged prices and markets or did other unethical things this was somehow better because at least it wasnt sucking from the teet of Government ?

What a strange world u must live in.

Anonyx said...

Rob, you seem fixated on this narrative of the "evil Koch brothers," without any attempt on your part to better understand the company. Scott has some direct experience. The fact that it doesn't square with some article or talking points you read makes you angry? Why not reevaluate your own opinions?

So what do we have here? It looks like to me a couple of disgruntled former middle managers whining about their former middle manager bosses. I personally know a couple of Koch managers whose ethics are impeccable and say the same thing about the corporation. None of this reaches the board level.

Another way to look at this is that Koch participates in some industries that, through no fault of theirs, have a very heavy hand of government regulating them. It's no surprise that in a company that large, there are some disgruntled former employees, and there are some instances of tension with regulators or corrupt government officials.

Koch has been an extremely well run business and has an excellent reputation in its industries. The Koch brothers have been consistent advocates for more liberty. It's striking how these facts make them dangerous in some small minds.

Rob said...

Anonyx, sure, always so easy to dismiss "a couple of disgruntled former middle managers". I take it you've never been tested as a whistle blower yourself then ? No, you're probably too busy enjoying your creature comforts, like Scott, and to hell with the world beyond your own bank account.

Here's some more reading on thos wonderful capitalist saints the Koch brothers:

bt1138 said...

" The Koch brothers have been consistent advocates for more liberty. "

My favorite Koch Brothers exercise in liberty advocation is funding voter-suppression legislation.

My 2nd favorite is funding anti-union legislation.

My 3rd favorite is funding climate-change deniers.

Oddly the also seem to like donating to Nova on PBS. At least they and I agree on something.