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

By Robert Bradley Jr. -- October 28, 2015

 “Good profit can only result from creating value for the consumer. It is the manifestation of the entrepreneur’s respect for what the customer values.”

– Charles Koch, Good Profit (New York: Crown Business, 2015), p. 244.

In his previous book, The Science of Success, Charles Koch, classical-liberal CEO of Koch Industries, Inc., described heroic, moral capitalism as “maximizing long-term profitability for the business by creating real value in society while always acting lawfully and with integrity.”[1] Real value to Koch comes from the economic means of consumer service, not the political means of special government favor (see here).

Part I yesterday shared some Koch quotations on cronyism from years past. Today, quotations from Koch’s just released book are presented that clearly spell out his views of cronyism in the mixed economy (what has been called political capitalism):

“Good profit comes from making a contribution in society–not from corporate welfare or other ways of taking advantage of people.” [p. 4]

“We don’t lobby the government to mandate or subsidize what we’re selling. That creates bad profit. Instead, we earn profit by creating value–for customers, society, our partners, and every employee who contributes. That is good profit.” [pp. 5–6]

“Companies are always lobbying for special treatment…. They did so quite effectively [during the Great Recession of 2008]– but at the expense of taxpayers and consumers, and to the rigged disadvantage of their competitors.” [p. 7]

“Market-based Management emphasizes Principled Entrepreneurship over corporate welfare, virtue over talent, challenge over hierarchy, comparative advantage over job title, and rewards for long-term value creation over managing to budgets.” [p. 7]

“I have spent a lot of energy and resources speaking out about the dangers of profit by coercion, which is the antithesis of our Market-Based Management philosophy.” [p. 7]

“Bad profit comes from disrespecting customers by making them subsidize our business with their tax dollars and higher prices, siphoning away the good profit other companies could have earned. This is why our company opposes government subsidies, such as special tax breaks, import tariffs, restrictions on exports, mandates, anticompetitive regulations, and bailouts–including those that would seem on the surface to be beneficial to us. [p. 7]

“Corporate welfare relieves recipients of the constructive pressure to innovate and create value for society, hinders the unsubsidized competition by coercion, and limits the choices available to consumers.” [p. 7]

“As Adam Smith noted three centuries ago, many people have tried to protect their businesses through political means–but always to the detriment of society as a whole.” [p. 55]

“The role of business is to respect and satisfy what customers value (even if it’s other forms of merchandizing) rather than lobbying the government to mandate what can or cannot be offered. Such activities are the ultimate form of disrespect for customers.” [p. 55]

“… logic–and history–tells us that market-driven creative destruction is much better than government limiting progress by protecting established businesses.” [p. 58]

“When an unprofitable business is supported by subsidies or protected by political means (like the French book-shipping law), it is not using resources efficiently.” [pp. 58–59]

“Artificially propping up businesses is bad for consumers, and ultimately bad for the employees of those businesses, since change is inevitable.” [p. 59]

“The political means of profiting transfers goods, services, or money from one party to another by force or fraud–for example, by laws or regulations that redirect consumer choices or that violate Vernon Smith’s rules of exchange and fail to hold accountable those who don’t fulfill their side of a contract.” [p. 62]

” … a business that continues to be unprofitable should be restructured, sold to a better-suited owner, or shut-down. If a business requires subsidies or protective laws to survive or employ more people, it is not generating good profit.” [p. 66]

“Creating value for society requires Principled Entrepreneurship–not political or other forms of entrepreneurship, such as corporate welfare or fraud.” [p. 125]

“There are plenty of those who argue that many CEOs are paid too much. I agree, in the case of COEs who owe their profits to corporate welfare.” [pp. 123–24]

“I am certain that every business should profit solely by creating real value for others, and not at all by attempting to slow down ‘the perennial gale of creative destruction.” [p. 251]


[1] Charles Koch, The Science of Success (John Wiley & Sons, 2007), p. 79. Also see Bradley, Capitalism at Work; Business, Government, and Energy (M & M Scrivener Press, 2009), pp. 9–11, 18, 24, 79, 89, 314–19.

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