Good Government

Free Market Friday: Lessons from Koch

October 29, 2015

Michael Carnuccio

In a free economy, profit is not supposed to be a dirty word. Sadly, it is to some, who demonize those who have achieved success.

Few have been attacked as savagely, and unfairly, as Charles and David Koch of the phenomenally successful Koch Industries, just up the road from us in Wichita, Kansas.

Koch’s early refining business grew out of its 1946 purchase of a refinery near Duncan. Today, Koch has more than 2,100 employees in Oklahoma – from the Georgia Pacific paper mill in Muskogee to the Koch fertilizer facility in Enid to the John Zink emissions-control operation in Tulsa.

Critics harp on how the Kochs spend their money in politics. But how did they make that money in the first place? In 1961, when Charles Koch took over the company his father had founded, it was worth $21 million. Today it is easily worth $100 billion.

Charles Koch has written an excellent book, Good Profit, exploring how and why Koch Industries has been so successful. In the book, which was released on Tuesday, he defines “good profit” as that from which a business makes from products and services that consumers freely choose to buy. Simple? Yes, but it’s surprising how many companies forget that truth.

Koch Industries practices what Koch calls market-based management, a philosophy that says “the role of business is to respect and satisfy what customers value … rather than lobbying the government to mandate what can and cannot be offered.”

Koch is especially disparaging of the bailout philosophy that has driven so much of America’s economic policies in recent years. He dislikes government-managed incentives, especially corporate welfare that “relieves recipients of the constructive pressure to innovate and create value for society.”

It might also confuse Koch critics to read that Koch Industries places environmental stewardship high on its valued corporate traits.

Market-based management, Koch says, embodies a number of guiding principles which include integrity, compliance (especially with laws), value creation, customer focus, knowledge, change, respect, fulfillment and humility.

To Koch, good profit is the result of business practices that benefit everyone: the owner, the employee, the customer, and society as a whole.

It turns out that Adam Smith’s invisible hand still works pretty well when it is allowed to do so.