The Tim Ferriss Show - #381: Charles Koch — CEO of Koch Industries

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Starting point is 00:05:24 all very socially liberal, who had become friends with Charles and suggested that I have him on the podcast. And we'll talk more about that, I'm sure. But let's get into the bio. And this episode, no doubt, will excite the internet because there is a case of insanity going around. And I would encourage you to listen and to focus on what I hope to transmit, which is the importance of attacking the problems, not the people. We'll come back to that. Let's get to the bio. Charles Koch received a bachelor's degree in general engineering and two master's degrees in nuclear and chemical engineering from the Massachusetts Institute of Technology, MIT. He is chairman of the board and CEO of Koch Industries, Inc., a position he has held since

Starting point is 00:06:14 1967. He was renowned for growing Koch Industries from a company worth $21 million in the early 1960s to one with revenues estimated as high as $110 billion, that's annually, by Forbes. It's one of the largest privately held companies in the world, and by revenue, it's larger than both Boeing and Disney. Let that sink in. He has transformed the business into a diverse group of companies that employ nearly 130,000 people, making everything from Dixie cups to components in your cell phone. For 50 years, Charles has supported academic and public policy research with a special focus on developing voluntary market-based solutions to social problems. This interest led him to found or help build a number of organizations, including the

Starting point is 00:06:54 Institute for Humane Studies, the Cato Institute, the Mercatus Center at George Mason University, and the Bill of Rights Institute. Charles credits the success of Koch Industries to applying proven principles of social and scientific progress, which led to the development and implementation of his market-based management, MBM, business philosophy. He describes MBM and its applications in two of his books, The Science of Success and Good Profit. Charles is now using those principles in philanthropy as the founder of Stand Together to tackle our country's biggest challenges. Stand Together is partnering with thousands of social entrepreneurs to help them improve their effectiveness and scale at tackling poverty, improving K-12 education, bringing justice to

Starting point is 00:07:32 our criminal justice system, and more. I have more to say, so don't fast forward. But you can find out more about both Koch Industries and Stand Together at kochind.com, K-O-C-H-I-N-D.com, standtogether.org, which I highly encourage you check out if you are a social entrepreneur or know social entrepreneurs in need of support and capital. On Twitter, at Koch Industries and at stand underscore together. It takes us a little while to get warmed up as it often does in these podcast interviews. So give it, you know, five, 10 minutes to get into flow. But we talk about a lot. We talk about books that have had the greatest influence on his thinking and actions. Thinkers. We talk about, for instance, the differences in acquisition strategy between Koch Industries

Starting point is 00:08:25 and Berkshire Hathaway. We really go all over the place. And I also ask him some of the questions that were submitted by people following me on social media. And there are some real haymakers that I do read towards the latter portions of this conversation. So I do not simply serve up softballs. That's not the intention. And that's certainly not the way that I run this podcast in general.

Starting point is 00:08:53 So this episode, why would I do this? Why would I deliberately polarize my audience? Because of identity politics and people applying labels to themselves that cause so many problems. And I'm not referring to Charles. I'm referring to a lot of people among my listeners, no doubt. It's because I believe, much like Paul Graham does, one of the co-founders of Y Combinator, that the more labels you apply to yourself, the stupider you become, and the more prone you are to groupthink. And it's very, very dangerous. And in this episode, my role, I view, is not to get you to like or dislike Charles, but to pay attention to his thinking, which I do think

Starting point is 00:09:41 is remarkable. And I will just mention a few things to calm down many of my friends out there who are predominantly liberal. I did live in the Bay Area for 20 years after all, to try to encourage them further to listen to this whole thing. Number one, I would say that Charles has been very active in collaborating with previous adversaries on criminal justice reform, including CNN commentator Van Jones. They shared or found they shared common principles when it came to reforming this country's criminal justice system. And that is the topic that actually was brought up by a lot of my friends who encouraged me to do this podcast. And in partnership with Van, Charles helped to build a nonpartisan policy coalition that passed historic criminal justice reform last year on foreign policy. Despite disagreements with George Soros

Starting point is 00:10:37 on many other policy issues, as you can imagine, Charles discovered that he had common ground with him when it came to foreign policy. So they partnered with Georgia's Open Society Foundations to launch the Quincy Institute for Responsible Statecraft, which is a new think tank to promote ideas that move the U.S. foreign policy away from war and towards vigorous diplomacy in the pursuit of international peace. And it goes on and on in the sense that despite, and I'm quoting the Guardian here, despite being a conservative powerhouse that has at times outspent the Republican National Committee, the Koch network is increasingly showing willingness to work with Democrats and investing in nonprofit groups to promote, quote, free and open societies, end quote.

Starting point is 00:11:20 And then jumping forward in that piece, long seen as GOP kingmakers, David love Charles Koch miss a lot. The ones who have the most intense views about Charles and Koch Industries. Likewise, the people who hate Charles or Koch Industries miss a lot. And my hope is that I'm able to add some nuance and texture to this person who is often evaluated based on headlines. And also, again, to encourage everybody listening, much like I feel Charles does very effectively, to attack the problems, not the people. I think that's the only path forward, really, is to, instead of asking how to most effectively fight against someone, to first ask yourself what you might have in common in terms of priorities, so that you can align in some fashion. Without that, we're all doomed,

Starting point is 00:12:38 I think, in short or long order, either way. That's a long intro, but I'm happy to provide this, and I'm sure that the feedback will be strong in all sorts of directions. Without further ado, please enjoy my wide-ranging conversation with Charles Koch. Charles, welcome to the show. Thanks, Tim. Thanks for having me. of a lot of what you've done. The main subject that has come up a lot is criminal justice reform, which I'm sure we will get to, and there's a lot to cover. I thought we would start with dandelions. Can you tell me about your history with digging dandelions? Well, I really consider myself blessed because I had the best of all possible worlds.

Starting point is 00:13:47 Looking back, it didn't seem that way at the time. But we were wealthy. And my father, he called himself a half-baked chemist. And he loved doing experiments. So we lived on an experimental farm. It wasn't a commercial farm, but it was a farm where my father could experiment with various things. So we had cows, horses, dogs, chickens, and raised crops. and my father announced at an early age, he said, I don't want any of my sons to grow up to be country club bums.

Starting point is 00:14:32 And I was a middle child. I had a brother who was two years older and two younger brothers who were twins who were four and a half years younger than I was. And so my father started this on my older brother, and he was more of an artistic bent. So this manual labor that involved helping out on this experimental farm didn't work as well for him.

Starting point is 00:15:01 And so I bore the brunt of it. And you may ask, why did I bear well that was one reason and as he put it I asked him years later I said pop why were you so much tougher on me than my younger brothers and he said son you plum wore me out and so so I I earned the the right to be in more trouble get knocked around more and do more work so I started he started me out in all my spare time working and the first was digging dandelions the reason I say digging you can't just cut them off or pull them you've got to get all the roots out or they just come back so that was my job and then I graduated into into shoveling out stalls feeding the animals milking cows digging post holes fixing fence and all that stuff and then

Starting point is 00:15:59 as I got older I got jobs in in other places. So it was quite an opportunity to learn the value of work and learn that I better develop some skills that other people will value or I could end up doing this the rest of my life, which I didn't look forward to. He used to say that, he said, I was a good kid in many ways as long as the work didn't come too close and so I had I had what's the economists call high time preference that is I was into instant gratification how could I minimize the work how could i do something that's fine so that was my whole orientation and and then i was blessed that i thought the only thing i was good at was getting in trouble and i was i was pretty expert at that and i found in the third grade that i i had a gift in in math and I later learned when I studied studying psychology I read Howard Gardner and his multiple intelligence theories and boy did that fit me because the only thing I was good at was what he called logical mathematical intelligence

Starting point is 00:17:21 and so I had a gift for math and abstract concepts. So basically my whole life has been to find opportunities that use that, that I could create value with that, and then to partner with people who were good at all the other things that needed to be done that I wasn't good at. And Dream Possible is because I've done that. Whenever I've tried to do things by myself or without that kind of support, I've basically failed. I want to ask a bit more about your dad, specifically about a, I believe you still have it, I would imagine so, a framed letter that you found in your father's safe deposit box after his death. Can you talk about the letter that is on your wall and why it's important to you? Yeah, he wrote that in, I think, January of 1936.

Starting point is 00:18:26 And I was, let's say I was born in November, so I was, let's say, three months old. And so he wrote it to my older brother and me. And in there he talked about adversity provides the greatest lessons and is certainly the greatest character builder. And then his hope for us and whatever he had given us that we used it, we didn't misuse it or waste it, but used it so we could experience

Starting point is 00:18:58 the glorious feeling of accomplishment. And so that's everything he did did whether i liked it at the time was toward that end and so he uh and i think this is so important for anyone who's a parent and certainly we've tried to do that is you don't lecture your kids on anything that you don't live up to. And he exemplified integrity, humility, treating others with respect. And as he used to preach to me, son, learn everything you can. You never know when it will come in handy. And so those were all great lessons, and there was no hypocrisy in there i mean that's the way he lived when you ended up uh after your education so after mit uh you

Starting point is 00:19:57 were talked back to wichita and my understanding is that uh he had an equipment company that wasn't doing well and effectively said you can run it any way you want. The one thing you would need approval for is selling it. Was that the time that your dad fascinates me? Because I think you might have been, correct me again if I'm wrong, but around 26. I have a piece of advice that he gave you. And it's, I hope your first deal is a loser. Otherwise, you'll think you're a lot smarter than you are. So it really seems that your dad was focused on preserving your sort of initiative and drive so that the the wealth wouldn't become a curse are there other things that he did when you first joined the business to facilitate that could be before or after but i'm wondering what that initial experience was like yeah we had uh my father

Starting point is 00:20:59 the the way he got me to come back he had had been after me. I was working for a consulting firm in Boston and learning a lot, and I got to work in all different phases. This wasn't just a management consulting. I started in product development, and then I did process development, and then I worked in an innovation group. And I kept maneuvering, so got to to try different things I was looking for something that I could use what a few gifts I had and in a way that would be productive and that and that I'd be passionate about and and by the way I had the reason I was able to get into MIT is I started, my time preference changed.

Starting point is 00:21:49 Rather than being instant gratification, I started, I got a much lower time preference. And that is, I became focused on the long term, on studying and developing these aptitudes and looking for a calling that I could use to create value for others and that would make me successful and that I would be fulfilled by, so I would be passionate about it and and work so i through all this that i worked in in multiple departments at arthur d little and and i just uh charles may i interrupt you for just one second i apologize that could we talk about i just want to pause on the switch that you made so how did you because a lot of people never make the switch from instant

Starting point is 00:22:45 gratification to this longer term focus what catalyzed that for you well i think it's it's that i said is my father always had me doing dirty jobs and i was minimizing the my work effort i put into it and at some point i figure out this is a dead end what am I doing and and it may be his lessons and his example seeped in and so I started started reading probably as a junior in high school started reading start with novels and then at mit i i got three degrees in engineering there but i was a lousy engineer but i was good at the concepts behind engineering but not on how to apply anything so i maximized the uh taking the courses in theory and so so I took mathematics for nuclear engineers, all these abstractions, because that's what I was good at. And so not that I've used a lot of that, but it really helped

Starting point is 00:23:56 develop my aptitudes. And so then as I got to work some in business and business consulting i found wow this came naturally because what i was good at in business were things like vision philosophy strategy uh logically analyzing problems and looking at the other side what could go wrong rather than just go with whatever ideas we had but to really experiment test them apply the scientific method to them which i part of which i learned at mit part of which i learned afterwards and uh i'd love to and we can we can certainly bounce around i mean that's sort of the nature of a lot of these conversations. But if we could talk about books, because it certainly seems like books have had a large influence in your life.

Starting point is 00:24:53 And in your book, Good Prophet, you wrote, I am a bona fide book person. My home contains more books than I'll ever have time to count. And the walls of my Wichita office are lined with them too. What are some of the books that have had the largest impact on your thinking? And two, I'd love for you to, in addition to anything else you might mention, I'd love for you to describe what impact two books had that came up repeatedly in my reading, F.A. Harper's Why Wages Rise, and I'm probably going to pronounce this name so you can correct me,

Starting point is 00:25:27 but Ludwig von Mises or Ludwig von Mises, I'm not sure. Ludwig von Mises, yeah. There we go. Yeah, the human action. Well, yeah, I can talk about those, but the two authors that have had the biggest influence on me are Abraham Maslow and Frederick Hayek.

Starting point is 00:25:53 A lot of what we do is based on Maslow's ideas of... He was one of the early positive psychologists rather than most of them in history freud and others had worked on the psychiatry of of illness and he took the other side he said what can enable somebody to have a fulfilling rewarding life and what he said is what you can be, you must be. If you are determined to live your life without developing your potential, you may be successful in other ways, but you will be deeply unhappy for the rest of your life. He said a bird has wings, a bird has to fly. What you can be be you must be and so that's and then he called that that state of

Starting point is 00:26:48 where you are fulfilling your nature uh self-actualization that what you can be you've you're becoming not that any of us are ever perfect in that because it's a continual learning experience and which requires ongoing effort so that's what we've we try to apply here at coke industries and that's what we're applying in our in our philanthropic efforts to enable everybody to have the opportunity to realize their potential and then what i x said of all the the insights that that he's provided, one that I quote in my book, Good Prophet, that what he called perhaps the greatest discovery in the history of mankind is that people can live and work together in peace and to their mutual advantage under generalized rules of of just conduct that is with generalized rules that enable people to succeed by assisting others rather than detailed rules that cause conflicts and and people trying to undermine each other makes all the difference. And that was from

Starting point is 00:28:07 his study of history, well, history, philosophy, economics, and so on. So you put those two together and it forms the core of my philosophy and what's enabled me to accomplish more than I ever was really capable of doing. You and I in previous chats have had Karl Popper pop up in conversation a number of times. Do you find yourself applying scientific principles or engineering principles that you used in your education to business? Or how does Karl Popper fit into your thinking about business or life? No, no, that's a great question. At MIT, I became fascinated with science and the scientific method. And then after I moved back to Wichita,

Starting point is 00:29:06 I started studying, one of the early things I studied was the philosophy of science and the scientific method. And particularly, one particular essay of Karl Popper's called Science is Falsification, in which he says that the true scientific method is develop a testable proposition, not a proposition that is untestable, but one that's testable.

Starting point is 00:29:32 And then your obligation is to, not to go find evidence that will support it, but go out and seek criticisms of it, find what's wrong with it. And that's what we do on everything. Like we have a project or an acquisition. The first thing to do is find what could go wrong. And any idea I have, let's say I have an idea for a new strategy or a new business.

Starting point is 00:30:13 And so the first thing I do is think through, okay, what are the key drivers of success here? What needs to happen? And let's say there are five different main drivers. Then I go find the people who can best show what's wrong or what could go wrong in each of those drivers. And we get together and I go through my idea and each one is expected to come up with ways that could go wrong.

Starting point is 00:30:38 And every time we go through that, we come up with a better answer than I had developed. And so that's critical the other philosopher of science that i've particularly drawn on is palani who wrote uh whose essay well a couple of things his essay on republic of science where uh the the reason a scientific community has been so productive and innovative is that no one's in charge. It's by consensus, debate, and knowledge sharing. And the innovations come about by taking different ideas and combining them in new and novel ways. And so that's another thing that or approach that we use in management.

Starting point is 00:31:29 Every one of our businesses we look at as a laboratory for innovation and finding new and better ways to do things and new and better opportunities. Charles, could you speak to perhaps an example of how you have applied the Republic of Science or the concepts therein? And for people who want to look them up, first name Michael, I believe, Polanyi. We'll put this in the show notes as well for folks but in terms of information exchange recombining in novel ways could you give a an exam a concrete example of how that has been applied right well the first thing we do is is we emphasize knowledge sharing many companies particularly large companies, operate in silos. And you have an incentive where, gosh, you have an idea or you learn something and you don't want to share it because you may not get credit for it. We consider that the kiss of death. So we expect everybody everybody to share and we build mechanisms and incentives in the company to to encourage this

Starting point is 00:32:49 internal knowledge sharing and then we expect every every discipline and every business to build knowledge networks around the world and it may not be largely isn't something that's in in your field or just with the competitors but something that's going on elsewhere and so we do that i mean for example on on how to keep compressors from breaking down and shutting down your whole operation. So we one group or we built a group to do data analytics to to take measurements and determine what it was near breaking down so we could repair it before it shut the whole plant down. And then everybody shared this knowledge and learn from each other and this this is our whole philosophy of mutual benefit that is the way to get knowledge sharing is show

Starting point is 00:33:56 when you help somebody else if it's the right person or group then they will reciprocate. And so we have this culture now of knowledge sharing, what we call a republic, create the republic of science. And that's true for everything, for not just compressors, but everything. And then we have innovation conferences that get draw from different disciplines and different of our businesses. They get together and throw out ideas they have. And then they get to know each other. So they don't just share when we set up a structure to do it. But they have what we call a spontaneous order where people just naturally know, gosh, I'm working on this problem. Who might help me in the company? And then who can help me elsewhere in the world?

Starting point is 00:34:51 Who's working on something similar? I mean, it's like what Newton said, if I see further, it's because I'm standing on the shoulders of giants. But they don't need to be giants anybody who who's working on a similar problem may have an idea that can help you and collectively we're all smarter than we are any of us are individually and you know to that point i'd say that it seems like you need to create systems and incentives to reward the right type of sharing. And I keep mentioning Good Profit. You've written other books, but Good Profit I've found very interesting for a number of different reasons. I mean, it's certainly completely politically agnostic.

Starting point is 00:35:42 I mean, you have John Mackey, co-founder of Whole Foods, who's praised it. You've got General Richard B. Myers, former chairman of the Joint Chiefs of Staff, and others who've talked about it. And it strikes me that sort of clarity of thought and systems are a recurring theme. So I'd like to talk about a few things that makes what you guys do different, perhaps, from others. And one that stuck out to me, and we don't have to spend a lot of time on this, but this is on Coke after Fred in Chapter 2. It was on the difference between acquisition strategies of Koch and Berkshire Hathaway. And I believe I'm getting this right, but it says Berkshire Hathaway buys companies when their competitive position is attractive.

Starting point is 00:36:31 And if their management is good, he assures them that he won't intervene except to decide how to invest the cash flow. Then he largely leaves them alone to operate as they had before the acquisition. Koch's strategy has been to make acquisitions when we can create additional value by applying our capabilities. I was wondering if there are any other differences or contrasts between Berkshire Hathaway or other companies that people might compare Coke to that come to mind. Are there any other differences that really stand out to you that we haven't talked about? What I look at, our management approach is based on understanding the principles of scientific and social progress. And we've codified and systematized those in the market-based management in five dimension and then which i i didn't describe in good profit because i i hadn't clearly thought through how we applied that that enabled us to do all the things we did that is to in in 1961 when uh when i joined the company we had two businesses the

Starting point is 00:37:43 largest one was a crude oil gathering system in southern Oklahoma, and the other was a smaller company that my father let me run initially that made internals for distillation columns. It was struggling at the time and and since then we've increased the value of the company seven thousand fold and entered all these different businesses we now have 12 business groups such as Georgia Pacific DuPont's old nylon business, and so forth. Well, I won't go through them all. But okay, the way we've done that is by creating what I now call virtuous cycles of mutual benefit.

Starting point is 00:38:46 And that may be highfalutin expression, but it accurately describes what we did. So the starting point is to understand what capabilities you have that others will value, that you can use to create value for others. And then to find the opportunities for those capabilities that will create the most value for others, and particularly others who will reward you for that value. So our idea that the ideal for business is to maximize the value you create for others, and your profit would come solely as compensation for that value you're creating for others. And then to continually improve and add to those capabilities, and then look for, based on that, what other opportunities are there for which you can create superior value? So there are two components then.

Starting point is 00:39:49 One is to become preferred partner for all your key constituencies. That starts with customers, but it includes employees, suppliers, communities, and society as a whole. And then the second piece is to continually transform yourself. Like our philosophy is, if we in a business or you as an individual working in an area, if you're the best in the world, it's not good enough. And particularly today with the rapid improvements in technologies within a year or two you're going to be obsolete if you just rest on your laurels so you've got to be constantly thinking on how do i improve how do i do things differently what are the new opportunities i mean if we had just stayed with the Crudeau gathering and making those tower internals,

Starting point is 00:40:50 I mean, we'd be out of business now. But it's by applying that, applying these principles of human flourishing and to create these beneficial cycles, focusing on how do I create value for all my constituencies, particularly those who will reward us for the value we create for them, is what has enabled us to do what we've done. And is that, in essence, the definition of good profit for which the book is titled? I mean, profit that is creating value for customers, society, partners, driven by sort of voluntary, a voluntary mutual beneficial relationship.

Starting point is 00:41:39 It seems to map. I'd love for you, if you can, maybe to confirm or clarify that. And then could you give some examples of what bad profit is? What are examples of bad profit and why? Our job is to produce products and services that our customers will value more than their best alternatives. And in doing so, to constantly reduce and become more efficient in the resources we consume in doing that, which, okay, how does that benefit society?

Starting point is 00:42:21 It frees these resources then to satisfy other needs. So that's what good profit is. Bad profit is all the ways they profit that is antithetical to that approach. That is trying to cheat your customers, misrepresenting what you're doing and rigging the system, getting corporate welfare, protectionism of all different kinds, including protection from foreign competition, but also domestic competition. And a great example of this is occupational licensure, in which there are like of these which are are mainly key people who start with nothing from being able to do anything because some of them require a couple years of going to school and and paying a substantial fee that they can't afford so it, it keeps poor people poor rather than

Starting point is 00:43:48 enabling them to realize their potential by developing their skills that other people will value. And this is things like hair braiding, hairdressing, manicurist, yoga instructors, funeral partners, interior decorators, you name it. Not things that will blow people up or anything that you think, gosh, the government needs to approve that. So it's all just cronyism, protection know, one thing that I've found engaging about Good Profit and a lot of your writing is that you're very, you're very specific and also very transparent in a lot of respects. There are a number of other things that fall in the book, and please feel free to correct if I'm getting this wrong, under the

Starting point is 00:44:45 category of bad profit, you've got mandates, subsidies, tax incentives, import tariffs, restrictions on exports, anti-competitive regulations, bailouts. And I'm looking at a workbook. This is a way to engage with the material, a good profit workbook for people who want to really understand the material and one of the questions that they pose is do coke companies participate in bad profit if so why how how would you answer that well you can't avoid it i mean if if we for example take steel tariffs. We oppose those, even though we have 40% interest in the newest steel mill in the country in Arkansas.

Starting point is 00:45:32 And I think Forbes just wrote an article about it in the last issue. Big River Steel. And so it makes us money. But we oppose it. I mean, we play by the rules. We're going to play by the rules. We're going to obey other laws,

Starting point is 00:45:53 but we're going to oppose all the ones that undermine the ideal role for business in society. And why? What, are you just running a charity? No. But we take the long-term view. And so to rig the system to make a quick buck and makes people's lives worse,

Starting point is 00:46:19 then what are you doing? Why does society need business that's making people's lives worse? If business and individuals are getting wealthy, the only way society's going to permit that long term is if they're contributing to helping people improve their lives, not making it worse. So this is a problem with business today.

Starting point is 00:46:50 We have business people have a bad, wealthy people have a bad reputation because there's so much of this cronyism and protectionism going on like we oppose the the the border adjustment tax like a 20 tax on all imports even though we determined it in the most likely case it would make us over a billion dollars a year by increasing the cost of living to walmart and costco buyers and And we helped get that defeated because as I told the leaders and Republican, I said, how does this make sense? Are you going to promote this? We're for this because it's going to make Koch Industries a lot of money and probably big exporters like Boeing and General Electric will probably never pay tax again, and it will increase the cost of living

Starting point is 00:47:53 for the great majority of people in this country, particularly those who are least well off. And, of course, they had their reasons, but it didn't make sense, and so we and others got it defeated. But the sad thing is you could tell what the great majority of companies, whether they were for or against that, depending on whether they thought it would make them or cost them money short term.

Starting point is 00:48:24 So that's it. All this short-termism that's going on i we think is is hurting people and undermining uh business's role in society what's uh what types of market distortions do you wish didn't exist? Or are you trying to prevent? All of them. All of them. Are there any particular examples that stand out for you as sort of the heavier domino of sorts or something that has particularly negative cascading effects? Well, I mean, the biggest are all these forms of corporate welfare, which I mentioned, occupational licensure,

Starting point is 00:49:18 the restrictions on innovation and competition, and opportunities for those who start with nothing, as I said, on occupational licensure. So that's what goes with those. And then all the protectionist provisions, these trade restrictions, our crazy immigration system. All of these are things we're working hard on to change. It strikes me, and I'm sort of a simpleton and pretty uninformed when it comes to these things, but that being a privately held company allows you a flexibility that some people in leadership positions and publicly held companies, publicly

Starting point is 00:49:58 traded companies would feel they don't have, which is a benefit that you have. For instance, if you have, because I would imagine there are differing opinions at points. So if you have an opportunity or a, say, legislative or regulatory change that could be short-term beneficial, profitable that is, and that conflicts with you, Charles, your direction that you would like to see things head on a broader scale for human flourishing. How do you have that conversation among top brass in the sense that revenue, profit, these are things that are easily quantifiable, whereas something like human flourishing may be harder to quantify. How do you guys have a discussion when there's disagreement? We had those kind of disagreements decades ago,

Starting point is 00:50:59 but I can't think of any of those. Now, we may have a debate on whether this will help or hurt long term, but it is always, will this enable to fulfill our obligation as a business, that is, to profit by helping others improve their lives? I mean, what we do is we teach these principles. We have dozens of people who work full time on teaching these and consulting on these principles, the principles of human flourishing and how to apply them that'll make us successful long term. And that's how we try to reward our people. Well, first of all, we hire first on values, on our guiding principles. We have now eight guiding principles. And so we hire on those, we reward on those, we promote on those. And if somebody isn't living by them,

Starting point is 00:52:04 we encourage them to go somewhere else because it's not a fit for them here and so so we have harmony that doesn't mean we don't have challenges and disagreements but it's on how to do how to realize this this vision and these goals rather than whether we want to sacrifice our principles for immediate gain. So I would say what guides us first are these basic principles of human progress, human flourishing. Second is building capabilities that will enable us to create value for others and then to continually transform ourselves to do a better and better job of that and to focus on using our capabilities to contribute so that's what's made us successful so i mean i mean you look at our track record not that we've been perfect and we haven't had problems and haven't violated these principles because we're all we're all flawed we all make mistakes and and get off track which we've we've done many times and do it continually particularly when as, as we do, have 130,000 employees.

Starting point is 00:53:27 That's incredible. I mean, it blows me away constantly, the power of these ideas. People say, oh, well, you're so smart. I am not. Believe me, everywhere I've ever worked or whatever, there are a lot of people who are smarter than I am.

Starting point is 00:53:41 It's just I was dedicated to understanding and living by these principles. And that's what's made the difference in my life. That transformed my life. Well, I'd like to talk about the principles in your intellectual formation. And I set a book note to come back to this. And maybe these are the wrong trees to be barking up, but could you speak to, I have a couple of thinkers I've written down, authors and thinkers. We've already talked about a few of them. Michael Polanyi, we've spoken about your father, certainly. I have F.A. Harper, author of Why Wages Rise, Ludwig von Mises, author of Human Action, among other things, of course, and

Starting point is 00:54:25 W. Edwards Deming. I'm wondering what are the main principles or lessons that you've taken away from any of those people? We don't have to necessarily cover all of them, but if any come to mind that we haven't given any airtime to, if there are any principles or learnings that you think are core to what you took away from any of the names that I mentioned. Right. Well, we've talked about Popper and Polanyi. And there was another, besides Republic of Science, that I got from Polanyi. and it's personal knowledge that, and he's written a book named Personal Knowledge,

Starting point is 00:55:07 which says there's a huge difference between conceptual knowledge and personal knowledge, and he uses the example of a concert violinist. Okay, the first thing at concert, somebody wants to be a concert violinist. First, how do i hold the the violin how do i move my hands how do i make notes and and so they focus on the parts and after these parts become natural like the violin then becomes an extension of your hands

Starting point is 00:55:42 you don't have to think about how to use your hands that's what he calls personal knowledge as opposed to conceptual knowledge and then after you do that enough where the parts become second nature then you can focus on the whole the whole is making beautiful music and so that's what I mean just that changed our whole approach to teaching our management philosophy because we were and it's what I call I think of a flaw in our education system it's not really education it's schooling teach to test and what we found in our programs that works and helps helps people realize their potential is to look is to consider real education to be three-dimensional

Starting point is 00:56:36 rather than one-dimensional and those three dimensions are discover your gifts, your aptitudes, and what will turn you on. Then the second one is do whatever you can to fully develop those. So first you learn to be, then you learn to learn, and then you learn to apply it. Okay, how do I apply these that will make a contribution in society that will help me better myself and in the process better others, help others better their lives.

Starting point is 00:57:16 And that's three-dimensional education. And we find that in our programs we've started and support. That's what we're looking for because that's what moves us toward a society of mutual benefit where people have the opportunity to realize their potential. So that's personal knowledge is another one another one is division of labor by comparative advantage which also fits howard gardner's uh thesis on multiple intelligence that is basically that people aren't smarter are dumb overall i mean except in the in real extremes but most of us are gifted in some ways and not too swift in others. And that I'm exhibit A in that. And so, I mean, that was that division of labor by comparative advantage.

Starting point is 00:58:18 That was first developed by Ricardo on nations. Nations ought to focus on what they're good at and then trade with others. And then that optimizes everything, learning, best use of resources, and so on. Another concept is creative destruction, Schumpeter's concept. That is, you don't want to be protectionist in your own shop. That is, you're doing something a certain way, like Kodak, in making film rather than do it digitally. They had the technology, but they tried to protect their existing product line, and so ended up growing broke. So you want to drive creative

Starting point is 00:59:06 destruction internally that is constantly replace what you're doing with a better way a better product a better technology another one is self-actualization when i which i described and then another one from also from maslow and other positive psychologists is what he called synergy is a system and a state of mind where what's selfish and unselfish merge i mean and that's what he meant by becoming contribution motivated that that focusing on helping others in a way that's also rewarding to you, then the whole dichotomy between selfish and unselfish disappears. Now, that's an idealized case.

Starting point is 00:59:55 That'll never be perfectly true. But if we could have a society and an organization where that's generally true, then you're going to be much better off and that's what we try to apply here that is to have uh what's in the long-term interest of the company in the interest of the individual employees uh and as i say i learned learned that from Maslow. And then free speech and open inquiry is another one. The role of property rights and decision rights, which is a key, one of the five dimensions of market-based management. Then basic values such as integrity humility respect and desire to contribute

Starting point is 01:00:47 then another from this is from von mises human action model people only act if the action will satisfy three requirements the first is is you become dissatisfied with your current state. You have a vision of a better state, and you have a path to get there. So this is very important for how companies or societies organize themselves. If people believe they're dissatisfied with the current state, they see what's wrong with it but they have no vision of of a better state and because you don't have free speech you don't have communication they don't they haven't seen a better alternative or you you're so bureaucratic

Starting point is 01:01:40 and and protectionist you don't allow anybody to improve or like in a company the approval process is so painful and difficult that you just give up somebody we worked with in one of the major oil companies years ago was always complaining about the bureaucracy there and he couldn't do anything wrong and i finally i said well so what do you do about it and he says well after a while you just paint your ass white and run with the antelope and so that's uh that's what what happened so these these principles may seem obvious but if they're so obvious, why are so many countries, organizations, and people ignoring them anyway? That's actually a fantastic question. Why do you think they are ignoring them?

Starting point is 01:02:33 Because they're not obvious or because there are other factors at play? And then I want to segue into, after you have a chance to just comment on that, to stand together and we'll provide some background to that and then get into it. But why do you think that these principles are neglected? Is it because they're non-obvious? Because they're difficult for other reasons? I think it doesn't fit their priorities. And I think a good part of it is they're short-term oriented rather than long-term oriented. I think that's critical. And as I say, that's been the demise of so many companies.

Starting point is 01:03:14 That's why you see companies, the top companies in the country 50 or 100 years ago are all gone. Or not all, but the great majority are gone or else very declined markedly in their position. Yeah, yeah. It's incredible how many blind spots, maybe not incredible, it's totally sensible how many blind spots are created by ignoring some of these factors. A friend of mine, one of the co-founders of a site and a service

Starting point is 01:03:48 called Reddit, who's been on the podcast, described a meeting with an executive at Yahoo at one point who dismissingly looked at their numbers and said, you're a rounding error. And of course, that didn't work out so well for Yahoo. So the creative destruction is really important. Let me mention one other principle that's been critical in my life. I touched on it. And that is that, as I said, I just have a narrow range of abilities developing those and focusing on that and then partnering with with people who could complement that and and and what i've learned is to have a good

Starting point is 01:04:35 partnership that would do that requires three things it requires shared vision, shared values, and having complementary capabilities. And where I've had that, partners who fit those three, or we fit those three together, then I've been very successful. Where I haven't, I've generally failed. And my best partnership has been with my wife. We've been together 51 years. And we share vision and values.

Starting point is 01:05:14 And I'm good at the few things she is. And she's good at about everything I'm not good at. So we make each other better. And so that's been another one of my great blessings and advantage in my life. Yeah, I wanted to ask you, perhaps later we'll come back to this,

Starting point is 01:05:36 but what is factors that have made it work? The relationship with your wife, because we've spoken about that before. And I do want to come back to that if we have the time to do so. But I also want to make sure that we have a chance to cover and give due time to stand together as a way of getting there. Because I think there are a lot of passionate supporters, and there are a lot of passionate detractors.

Starting point is 01:06:07 And at least in my own very small microcosm of this, my experience is that the most intense supporters and detractors tend to miss things. So I want you to correct me if I get anything wrong that I'm going to say as a means of context. But just leading up to Stand Together, I want to paraphrase a former congressman, Joe Scarborough. This is from that source. Basically, the gist of it is, although your critics are usually unaware, the Koch brothers have supported more than just what are generally considered conservative causes. They oppose George W. Bush on many issues, are pro-choice, support same-sex marriage, and worked closely with the Obama White House for the Obama administration's criminal justice reform initiatives that aligned with their own. I have two things that I wanted to mention on criminal justice reform and foreign policy, and then feel free to, and I would love you to correct anything that I get wrong,

Starting point is 01:07:02 obviously. But what's impressed me about a number of the things that you've done, and probably many, many things that you've done, is that you've allied with former combatants is maybe too strong a word, but people with whom you've had tension or people with whom you still have many disagreements over different things. The first criminal justice reform, despite what I believe was pretty adversarial relationship with activists and CNN commentator Van Jones, you ended up collaborating to work together on criminal justice reform. Similarly, on foreign policy, despite disagreements with George Soros on many

Starting point is 01:07:44 policy issues, you found that you had common ground when it came to foreign policy. So you were able to partner with Georgia's Open Society Foundation. The question I want to ask you before we get to stand together, which we're going to in just a few minutes, is how is your approach to policy? A, did I get anything wrong? I'm cheating. It's a two-part question. And then B, how has your approach to policy coalitions changed over time? No, that's a great question.

Starting point is 01:08:14 Well, I've been at this social change and philanthropic approach for 55 years now. And it was basically, I had learned these principles that had transformed my life and enabled me to really realize my potential and accomplish more than I ever dreamed possible. And so I had the desire to help as many others have the same kind of benefits in their own way to fit their own situation and gifts, and so I started, as I say,

Starting point is 01:08:58 and I started on this in 1963, and for the first uh let's say uh 40 years of that i wasn't involved in politics at all i wanted to stay away from that and and work with helping people realize their potential and supporting mainly students. And then as the students talked to their professors about what they were learning working with our organization, that the professors would come and they'd want us to help them set up a program to do that. So it just spread.

Starting point is 01:09:48 And then to get things done, we decided we needed to build organizations that would, well, first of all, that would take these ideas and develop what are the policy implications of these. And so I found the Cato Institute and a number of other institutes to do that. And then we decided we needed to help mobilize people. More and more people were interested in these ideas. How do we get policy changes? Well, we need to mobilize people who are interested in them and help them have a voice.

Starting point is 01:10:29 And so we started doing that and then decided we needed to get politicians, more politicians who would be interested in ideas that would really help the country long term rather than just help them get reelected. And so we started doing that. And the Republicans seem, although far from ideal, seem more sympathetic to these. So we started supporting Republicans. And then we learned that didn't get us anywhere. So we have changed. No, we will go back and support anybody who will advance these policies that will help bring about the society of mutual benefit where people have the opportunity to realize their potential.

Starting point is 01:11:18 And so if you put it in terms of my philosophy on partnerships, you share vision and values and have complementary capabilities. What I was doing was applying two broader requirement for shared vision. That is, okay, we'll only support those and work with those who, we share broadly a vision of what kind of society we want. And so that was really limiting the number of people we could work with. And so in the last few years, we've changed that. All we need is shared vision on a specific issue. And we may disagree on everything else,

Starting point is 01:12:02 but if you can really help us advance this policy that will help people improve their lives, we will work together. to working with us and bragging on us and and enabled us to work with sorrows and everybody on specific issues other even though we have major disagreements with him and that see and then that fits where we're finding is doing that it reduces the the hostility and the conflicts if rather than you meet somebody rather than try to find something you disagree with on and fight them and attack them search for something you can work together on that will contribute that will help people improve their lives and doing that, now we have allies I never would have believed we can. And now, as this is changing our brand and how people look at us, now many, many more people are open to working with us. And it seems like a lot of what you've done, not just in the last years, but certainly even before that,

Starting point is 01:13:26 has led up to this initiative, Stand Together. Could you tell us a little bit about that focus and why it's a focus, what it is? Right. We started the organization that was originally Stand Together, now Stand Together Foundation, to build on the work we were doing in troubled communities. And our approach there is what we call bottom-up as opposed to top-down. And it starts with the recognition recognition as i've been saying that everybody has a capability to

Starting point is 01:14:08 realize their potential if they have the right mindset and support so how do we how do we help people get the right mindset and support so they can have a better make a better life for themselves and it's as i say it's with a bottom-up approach rather than a top-down approach and what i mean by that is rather than have somebody come in and say well on average or we can improve the statistics on this here's what we're going to do and we want everybody to to do this thing. We find that hasn't worked, but what works is to find what we call social entrepreneurs who are closest to the problem.

Starting point is 01:14:55 And this would be largely people who've had a problem, have gotten in trouble, have been held back, and have learned to overcome it, and now are dedicating their lives to helping others do the same. So they have different capabilities than we do. We advertise, if you're interested in our help so you can improve your efficiency by better management practices and want to scale and celebrate it so it can spread so more and more people can benefit from your proven approach,

Starting point is 01:15:37 then we'd love to do that. And so we've had several thousand applications we now have 150 of these partnerships in these troubled communities on on everything from addiction to to criminal justice to homelessness from lack of economic opportunity from two young people who who have only seen negative contribution, negative motivation rather than contribution motivation, and to help them change their mindset that they can succeed and contribute. And it strikes me, and I'd love for you to correct me if this isn't accurate, but it seems like you're taking a lot of your experiences from, say, criminal justice

Starting point is 01:16:32 reform, where you've focused, among other places, on really analyzing recidivism and reducing recidivism, looking at how to change things so that employment opportunities for released convicts aren't as constrained as they are currently. We're expanding those options. And I've actually spent time in some max security prisons, teaching entrepreneurship with a number of organizations, that you're taking some of those learnings and then applying it more broadly to enable a community of social entrepreneurs. So some of the numbers that I have in front of me are in terms of the entrepreneurs and groups

Starting point is 01:17:19 who are focused on, and it looks like there are five, four key institutions, education, business communities, government policy. So you have more than a thousand professors at more than 350 universities, tens of thousands of K-12 teachers. And this will lead up to a question, more than 700 of the top business and philanthropic leaders that combined employ more than more than 2 million people, 140 plus community groups tackling poverty and addiction. I'm very interested in addiction. That's a longer story for another time.

Starting point is 01:17:53 But millions of grassroots activists in all 50 states. So this is clearly bottom up, like you mentioned. I think a lot people when they when they hear charles coke think market-based solutions are market-based solutions part of this or looking for market-based solutions or is it broader than that well it's uh it's market-based and that in that it's uh it's uh looking at what really works and looking at individuals rather than i mean that market is is a little bit of a of a misnomer but it's applying the same philosophy that that made coke industry successful and enables us to to help our our employees become contribution and motivated and by the way i and you suggested this early and our employees who after years of learning they can succeed by constantly improving their ability to create value for others they tell me and and after they retire or leave, write me and say they are so appreciative that they learned this

Starting point is 01:19:10 because it improved their family life, their communities, their friendships, everything, to look at it that way rather than the way they were looking at it before. But so it draws, yeah, on our experience in criminal justice reform, but more broadly, our experience in what made Koch Industries successful, what have made societies throughout history successful, which ones have people have flourished and which ones have people been immiserated, and what we learned in developing youth entrepreneurs. And that's an organization my wife and I started 28 years ago here in Wichita. As we saw, met so many kids that obviously had ability that they did played sports with but we're

Starting point is 01:20:06 just getting terrible advice they were came from broken homes and tough neighborhoods where people were trying to hurt each other so wow this is what a waste so we need to start something particularly in this in these inner city high schools that would teach them what we call principal entrepreneurship that is this to have create this three-dimensional education where they learn they could change their mindset look in spite of you thinking things are hopeless from where you came from they're not all you got to do is change your mindset and then we'll provide the support to help you become successful.

Starting point is 01:20:49 So in youth entrepreneurs, they theory what are the skills and values they need to be successful and discover their own. And then prepare a business plan and the best business plans will get some venture capital to help you start your own business and then we'll if you're successful you can we'll we'll find a local entrepreneur to help mentor you maybe provide internships for you and if you continue to do well you want to go to trade school or college, whatever fits you, we'll help you do that.

Starting point is 01:21:26 And it is amazing how many of these young people's lives have been transformed by this and are running successful businesses out of this. Everything from car dealerships to one developed a protein bar that sold on Amazon. Clothing lines, chartering buses, fitness clubs, hair braiding, making jewelry, tutoring others. I mean, it is incredible. It just blows you away. And you hear these kids describe how this has transformed their lives. So that's what motivates me, not just the theory, but seeing what it really does to change people's lives. something, Charles, when you're operating at such a high level in many respects, and you have

Starting point is 01:22:29 so many different places you could allocate capital and effort, what does success look like for Stand Together Foundation, say say a year from now three years from now whenever you would assess it to determine whether to put more into that or more into something else which could also be philanthropic maybe just a new iteration or a new foundation how do you how do you think about what the success metrics are or if not metrics, how you determine if it is working or not? Well, I mean, what we're looking for with these social entrepreneurs is which ones can really we help scale and then celebrate so it can capture the national imagination and

Starting point is 01:23:24 change the way people think about these, like criminal justice reform. I mean, there it was, what was current in choice was, okay, somebody did something illegal, block them up and throw the key away. And prison is for punishment rather than to help them rebuild and get a second chance. Now it's changing because we and others, Van Jones and others,

Starting point is 01:23:58 have built these broad-based coalitions that this First Step Act passed by 87 votes in the Senate I mean that's incredible in this day and age to have this kind of bipartisan support and there's impetus to to take it to the next level but it's it's changing life as people realize that 90 some percent of people who go to prison get out. And do you want prisons to be incubators for more hardened criminals than they were when they went in? Or do you want them to have a second chance and come out with a skill and values that will enable them to contribute and become contributors rather than detriments to well-being and safety. And I mean, for example, one of the groups we support, Hudson Link, puts on college accredited courses in prison that are three-dimensional, as I mentioned, and of the graduates of their program has a recidivism rate, percent that go back to prison in three years after they get out

Starting point is 01:25:16 is 2% from graduates of their program as opposed to nearly 70% nationally and 40-some percent in New York where they have mainly operated. And we've helped them. They're up to five prisons now, and we think it can be greatly expanded. You've also done, you've supported some really good work being done in addiction treatment with the Phoenix. And I'll link to all of this in the show notes so people can take a look at it. But it's really important work. These are important topics. And part of the reason, Charles, that I wanted to have you on after months of just organizing to make it happen is that in very polarized times where you have, it could be any number of people, the president or someone else is the second coming on one channel, you flip to the next channel, and he or she is the antichrist,

Starting point is 01:26:33 that it is possible to attack the issues or attack the problems and not the people. And while I'm sure that, and I would hope that, if we were to spend more time together, you and I would disagree on a lot of things, that there are things we could absolutely agree upon. And that provides the space to have a conversation and discuss the possibility of collaboration for things that anyone can agree upon. And I'm really pleased to give some of those specific examples, because it's paralyzing when everything becomes ad hominem. And so that's really more of a comment than a question, but I just wanted to thank you for making the space for us to to talk about that uh and uh i do have some more questions but the question about uh about the standing other foundation are are you still accepting applications by social entrepreneurs uh or has has that window already closed? Oh, no. We haven't actually helped change the trajectory of the country more toward this ideal.

Starting point is 01:27:51 So we're just getting started. We're up to over 150 now of these social entrepreneurs we're partnering with. And we think as we're developing capability, we can add as many as 70 a year so we're just uh we like just scratching the surface and and then developing the capability to help them scale and then to to more fully celebrate it to get this out in the mainstream so people see what's working and how how this approach can transform lives what what these individuals have learned from their own experiences

Starting point is 01:28:36 and and are dedicated to apply and those are my heroes in society of people who have suffered injustice, tremendous injustice, and rather than come out better or giving up, to dedicate their lives so that others don't have to suffer similar injustices. I mean, those are, that's, if we can encourage more and more people to have that frame of mind and that kind of dedication, that's the only thing I think that will get us on a better trajectory in this country.

Starting point is 01:29:18 People can learn more. Of course, I'll mention this at the end of the show as well, but standtogether.org is a great URL and a simple URL an opportunity to talk about sort of ad hominem versus issue-based debates and also accurate perceptions versus misperceptions. So I have some questions from my audience an emotional voice to a number of things that people, some people, rightly or wrongly, want to ask. So the first one I'd like to throw out, and this is from Matthew B., and you can tackle this any way you'd like, but the gist of it is, does he ever have pangs of guilt about the millions of Americans made poor, sicker, or dead by unfettered capitalism? Does he actually prefer a world where the majority struggle in misery so few can hoard billions? Why are higher profit margins worth polluting the environment, and how does he square that with the animals and people sickened and killed by

Starting point is 01:30:48 deregulated industrial pollution? So that's very strongly worded, of course, but I want to sort of give airtime to a few of these questions. And there are a number of questions about, uh, environmental issues and, and climate change. Uh, so I, I'd love for you to answer that in any way that you'd, that you'd like. I mean,

Starting point is 01:31:12 I think we've talked about, you don't need to answer. Do you prefer a world where the majority struggle in misery? So if you can hoard billions, I think that's pretty self-evident that, uh, your answer is you do not prefer that. But,

Starting point is 01:31:23 uh, how would you like to comment or respond to that? No, we would agree. I mean, I'm not, I don't like the term capitalism. That assumes that what we're after is a system where certain people have a lot of capital, and that's not what we're about. What we're after is a system where everybody has the opportunity to realize their potential, including those who start with nothing.

Starting point is 01:31:58 And business should only profit to the extent they're helping other people improve their lives and that so uh and and polluting and making people sick killing people is they shouldn't profit they should bear a cost for that and those are my worst you you talk, you ask about failures. Our biggest failures in my mind and what we work the hardest on are safety problems. When there's an accident and people die. I mean, that's monstrous. So that's job one is keeping people safe. And job two is protecting the environment and I think the last five years the EPA has ranked us either number one or number two of US companies

Starting point is 01:32:55 in pollution reduction initiatives that is that is our second top priority after keeping people safe so i mean we agree to the extent but what you find is that the the countries that do the worst in those are those that are top down if you're bottom up and you're looking at individuals and how to improve their lives, it changes your approach rather than some top-down statistical approach or control. And so that's, to me, the basic difference is, do we want a system that empowers people or one that controls them. And you look at systems through history that have tried to advance humanity by controlling everybody and making them follow some theory

Starting point is 01:33:55 of the people in charge as opposed to having incentives and rules that will cause people to want, to believe that the way to succeed is by helping others improve their lives i mean the results throughout history there is no comparison between the two in in the benefit to human flourishing i mean if you want to look at the biggest polluters look at east germany when when that became combined with west germany they had all these inefficient factories that were massive polluters and then and then look at i don't know if you've seen the documentary trinobol

Starting point is 01:34:40 on the that shows when things become politicized they become corrupted and that's that's why all those years i got had nothing to do with politics and now we're uh we have something to do with it but uh but based on on not partisan but who's going to help improve the policy so we can move toward this system of mutual benefit? So, I'm going to ask just a few more of these, and I'm going to alternate between the highly politically charged and not. So, I'll go to one that I think is not, but I'd be curious to hear your answer. It was upvoted quite a bit. This is from John J. Ask Charles why we can't return to the tax structure of last century. Higher taxes equals higher GDP. We average twice the GDP of today. Trickle-down never works. Government has created or supported most businesses in this country. Computers, GPS, internet, roads, electricity,

Starting point is 01:35:39 et cetera. What are your thoughts, Charles? I mean, my reading of history is is somewhat different my i i don't i don't have a dog in the fight because i'm not i don't i'm not well educated on this people are liberated and empowered uh they succeed if you look at the the history of humanity for all the millennia up until starting in the 18th century, there was barely any improvement. And because these were top-down societies where those in charge, well, they were beyond authoritarian. They were totalitarian, and people weren't allowed to think differently. If you violated the religious dogma, tortured until you either died or changed your opinion or were threatened with that. And so that stifled progress. And then starting really with Holland when they got up from under Spanish rule,

Starting point is 01:36:47 they started liberating. So religious and other dissidents started coming to Holland and they had free trade open. I mean, they had plenty of problems. They still had slavery, which was endemic everywhere. But they had much more than others. So they became the most prosperous country in the world and then it it it followed in in england and then spread to the united states these ideas and was to me best embodied in the declaration of independence that is a system of equal rights and and everybody

Starting point is 01:37:27 having the right to the pursuit of happiness which to me is a different way of saying the opportunity to realize their potential and to to learn contribute and succeed and to the extent that was followed in this country made us the US the most successful country in the history of the world unfortunately it was not applied across the board for example African Americans and Native Americans had no rights obviously with slavery for African-Americans and practicing genocide against Native Americans. Women only had partial rights, not just,

Starting point is 01:38:16 and I'm not talking about just the right to vote, but they weren't allowed to go to college in the early days. They weren't, when they got married, whatever property they had, their husbands controlled. So the relationship between husband and wife was almost like a master-servant relationship. And it took 80 years to remove the great majority of that. Then various immigrants, particularly the Chinese and the Irish, had only partial rights, and certain religious groups didn't. So all those were violations of the principles in the Declaration of Independence.

Starting point is 01:39:04 And to me, what we're working on, what Stand Together is working on, is to eliminate the aspects of all those injustices that continue to haunt us, haunt the country today. Thank you. A lot of, I'm going to jump back to the the more charged a lot of these questions are about climate change and i don't i don't know the answer to this i'm just going to ask since this is sort of thematically has come up a couple times from iman yeah i'm not going to give the last name this one is from iman do you really fund propaganda to confuse people about global warming? Well, I certainly hope not. Believe me, I am totally dedicated to the scientific method

Starting point is 01:39:52 and good science. And what we're doing is trying to get various groups, not people on the extremes who say there is no man-made contribution to warming, or others who say within a few years, the world's going to end. So leaving those people out, people who are somewhat open-minded and willing to listen to the other side to get them together and we've had several of those sessions so we can find something i mean there there's enough concern about a man-made contribution to to warming that various policies are have been developed and are being developed and so what we want them to do is is to find policies that will actually work, actually do something about reducing CO2 emissions, man-made CO2 emissions, and at the same time not make people's lives worse. So many of these policies haven't done

Starting point is 01:41:03 anything, reduce CO2, but they make people's lives worse, particularly the poorest. And the biggest contribution or the biggest reduction has been in the U.S. in recent years because of fracking of natural gas substituting for coal and so the u.s. is now figures I have seen is now responsible for 15% of the co2 man-made co2 generation and a countries in Asia particularly China andia share is growing and the problem with many of our policies is they they aren't doing much for it and they make us less competitive versus china and china has uh double the co2 emissions per unit of gdp that the does. And so as we push more over there, push more production over there, we're just increasing and uncertain of the production there, for example, in fertilizers and chemicals that are based on coal gas rather than natural gas.

Starting point is 01:42:21 It's four to five times the emissions per unit of production. So these are all dilemmas that we try to do something here, but many of them make it worse. So what we think we need are innovations that are going to cause China to adopt them and have them reduce emissions rather than us try to do it in ways that causes them to increase emissions. So that's what we're working on. And because it's not, it's just not, once again, it's just not a simple top-down matter.

Starting point is 01:43:02 You've got to provide incentives for people to do it, and people have to believe it will make their lives better rather than worse and accomplish nothing, which is what a lot of the policies have done. Yeah, it's a great point about China and offshoring that I certainly hadn't thought through as granularly as that. I mean, it's, yeah, if you're pushing off production into jurisdiction or just, it could be jurisdiction, it could be regulatory, it could be cultural, I have no idea, where the emissions or pollution per unit of production is four or five times higher,

Starting point is 01:43:45 you haven't solved the problem by changing the location. And you see that in the world, all these policies and all these initiatives, and CO2 emissions are still going up around the world. So we need a different approach. I mean, to keep doing the same thing over and over is a form of insanity so that's what we're trying to do is get people focused on something that will make a difference and not make people's lives worse so charles this is a question for me just building on that uh or related to it. What do you think are the most legitimate existential threats to mankind? If you go to Silicon Valley, artificial intelligence is a very popular vote. You certainly have climate change or global warming, depending on whose wording you're using, which is the vote for a lot of folks.

Starting point is 01:44:45 In your mind, what are, if any, the more legitimate existential threats to humankind? I think the biggest threats, as they were for millennia, up until the 18th century, are top-down. The tyranny of experts, the fatal conceit that a few smart people can go tell everybody how to live their lives. And what we're finding

Starting point is 01:45:15 when working with these social entrepreneurs, the ones who have good solutions, micro solutions, not macro solutions, because they've lived through problems and they they work their way out of it and they know what works and are proving it every day that that's what we need as society as as hayek found in history that enables people to pursue their own interests in a way that is mutually beneficial and leads to peace and harmony.

Starting point is 01:45:56 And these top-down solutions, all they do is create partisanship and conflict. And that's what we see today in this country because politics is win-lose game. Working together to your mutual benefit is win-win as opposed to win-lose. So we need to maximize the amount that we allow people to do to advance their interests in a way that benefits others. Are there any particular problems that

Starting point is 01:46:37 worry you or things on the horizon that worry you that you think everyone should be paying more attention to? Any specifics that come to mind? Yeah, I think policies on trade and immigration, it's what is attributed to Bastiat. If goods don't cross borders, soldiers will. And then our foreign policy of forever wars. That's why with Soros' foundation, we created the Quincy Institute, named after John Quincy Adams, who said, following the founders, we go not abroad in search of monsters to destroy.

Starting point is 01:47:27 We're the friends of all nations and allies of none. And so we're in dozens of wars. We have over 800 bases around the world. We're involved in everything, trying to control the world. And it doesn't work. This is totally, this is the most top-down of all. Yeah, it didn't work very well for the Roman Empire. Not to say they're equivalent, but quick review of history, it seems to indicate that that doesn't tend to pan out super well. And then you add nuclear weapons to the mix, and the more we bully, or like we did in Libya,

Starting point is 01:48:11 Gaddafi promised and got rid of his nuclear ambitions, and so we destroyed him. And so that creates a little bit of perverse incentive for Iran and North Korea and stuff to believe our promises that we'll leave them alone if if they'll drop their nuclear weapons so i mean it's this stuff is so backwards what would uh this this is this is a question from i think it's jokum or hokum i don't know how to pronounce it uh and i i know know we probably only have a handful of minutes left.

Starting point is 01:48:46 If you're open to just going for another maybe five to ten minutes. Sure. And his question is, what would you be willing to risk your whole fortune for? And I'll just add my own parameter to that, which is it's not necessarily betting the farm with the company, but your personal fortune. Is there anything that you would risk a lot of or your entire fortune for? Well, I'm investing all the liquidity I have in stand together. So, I mean, the economists have a concept called demonstrated preference

Starting point is 01:49:16 that pay attention not to what people say, but what they do. So that's what I'm doing. And then I dedicate a lot of my time to that as well my time and right and treasure and uh and so that's that's what i'm i'm risking everything to and that's that's the progress we're making there is one of the reasons i get up in the morning charged up every day yeah well it's important to have a reason to get up, which I think you're, not to harken all the way back to this, but your chapter on incentives

Starting point is 01:49:53 in Good Profit actually touches on quite a lot. What would you put on a billboard, metaphorically speaking, if you could get a quote or a message, question, a word, anything non-commercial out to billions of people? Is there anything that you might put on that billboard? Yeah, I put, which is our slogan at Stand Together, greater your good. And that's because that's a little bizarre. So what are they talking about? So you would hope that then they'd follow up. What do they mean by that?

Starting point is 01:50:34 Yeah, what do you mean? Yeah, I mean just exactly what I'm thinking. I mean, what we've been talking about, that is discover your gifts, develop them, and apply them in a way that helps others that's also beneficial to you so you'll be motivated to continue to do it. Well, Charles, I don't want to take up too much of your time, but I do have maybe a few more questions. And I want to, we started close to the beginning, age six, I want to say, something along those lines, digging dandelions. Let's go back even further.

Starting point is 01:51:14 Who were you named after? Where do you get your first name? Well, my first and middle name is Charles Daganall. And I was named after an entrepreneur my father worked for named Charles Daganall. And my father at age, I don't know, 25 or so, or maybe it was 27, designed a refinery for him on the Isle of Grain in the UK and worked for him for a couple

Starting point is 01:51:49 years. And they became lifelong friends. And he greatly admired Charles Degenault's entrepreneurship, his integrity, and his treatment of others. So that's who I was named after. Did Charles give your father opportunities that were important early on? Or did that factor into the friendship that they developed? Or was it, in a broader sense, what you just mentioned? Yeah, his son, Carl Degenaulto was a classmate of my my father my father started at rice and studying chemistry because there wasn't a field called chemical engineering and then after during his sophomore year there mit started the first chemical engineering department and so my the junior year my father transferred to MIT and and got his degree there in

Starting point is 01:52:54 chemical engineering practice and then he went to work for it was Texaco then and then the gasoline products company which was a process design company. And in all this, he developed his own ideas on refining and upgrading heavy oil. And so Charles Dagonal wanted to build this plant in the Isle of Grain. And believe me, plants back then in the 20s were nothing like today. A whole refinery would cost maybe a couple million, and it was primitive by today's standard. But Carl recommended to his father that he hire my father as an employee at Gasoline Products Company. And so my father quit Gasoline, went to work for Charles Dagonall.

Starting point is 01:53:54 So he gave him that opportunity. And then my father wanted to go in business for himself. And he came to Wichita where another classmate had an engineering company, and he joined there as a partner. He invested $300 and became a partner. And another funny story is people wonder, well, how'd you get the name Koch?

Starting point is 01:54:20 How do you pronounce that? Well, my grandfather, my father's father, immigrated from the Netherlands in 1888, and he didn't speak any English. So he came over. He was a printer's apprentice, and he went to work for various Dutch newspapers, and in that learned to speak English.

Starting point is 01:54:41 And then he heard about this print shop and weekly newspaper in Quanta, Texas that he and a partner could buy for, I don't know, two, $300. And so they bought that, and it was a very poor place. They mainly got paid with, a farmer would have chickens or eggs and deliver eggs or chicken or wheat or whatever.

Starting point is 01:55:11 It's largely a barter system because nobody had any money. And so that's where my father grew up, and he had this technical ability. So he said he wanted to go somewhere where there was more opportunity. So he went to Rice and then MIT and then ended up with his own business. And is Coke the Dutch pronunciation? Oh, yeah. Thanks. I got off the subject.

Starting point is 01:55:36 Yeah. So my grandfather pronounced it Coke. Hard for English speakers. Well, particularly West Texans. That doesn't exactly fit their pronunciation. So they pronounced it caw, like a crow, caw, Fred caw. That's the way it's pronounced there. My father hated that pronunciation. And one time he was traveling on business and he was paged as Fred Coke and he said I like that so that's how we got our name so you can see it has this elegant history that's amazing from royalty from from

Starting point is 01:56:15 the bartering with chickens and having people address him as caw hating it so much that he took the last name from an announcement. That's incredible. Well, Charles, I suppose, much like the Charles that we mentioned who gave your father those opportunities early on, I'm really excited to see what Stand Together does and what opportunities they provide to people who could benefit from them. And hopefully, like you said, to scale solutions that can capture the imagination of the nation. That's a worthwhile project. And people can learn more about that at stand together.org.

Starting point is 01:57:06 They can learn about all of the, the company side of things at Coke, I N D.com on Twitter. People can find stand together at at stand underscore together. And Coke industries is simply at Coke industries. Is there anything else that you would like to say or discuss? Yeah, I think there are a number of videos that I've done and others have done on YouTube. I think you can just go on YouTube and look up Charles Koch and you see mine.

Starting point is 01:57:41 And so you can get but I mean I mean particularly what I've said and then you can you can judge me by that I've done a number of of op-eds and and I've done one with with Bloomberg on free speech and open inquiry at college campus, Michael Bloomberg. I've done one with Tim Cook on Apple, on the Dreamers, on making them permanent. And we've brought Dreamers back to Washington and to the NASDAQ to show how many of them are productive. A bunch of them work for us and other companies. Microsoft has joined us in that. United Negro College Fund on the work we've done with that organization to help students at these

Starting point is 01:58:51 historically black colleges to learn principled entrepreneurship. So that's been another amazing story of helping these students transform their lives just like youth entrepreneurs has been. Great. I will get a number of videos from your team and then we will also link to the op-eds. And for everybody listening, you'll be able to find links to everything that we spoke about, certainly in the show notes at tim.blog forward slash podcast as always. And you can just search by the episode or search Koch, K-O-C-H, and it'll pop right up. Charles, thank you so much for taking the time. I know you're a very, very busy man.

Starting point is 01:59:38 You seem to be as busy as ever at 83, which I admire. And I hope that this episode will certainly bring attention to Stand Together. But even more than that, some of the principles behind it and the underlying ability, if we choose to exercise it, to attack the problems and not the people. Even with the people you most disagree with on, say, 90, 95%, 99% of all issues, you can still find common ground. So my hope is that this episode and the stories that you've shared, and certainly the current initiatives also, will show people that that is a path you can choose. So thank you for making the time, Charles. I really appreciate it. Well, thanks for having me, Tim, and asking some of the tough

Starting point is 02:00:37 questions. That's what we need. That's the scientific method, the challenge. So I enjoy it and appreciate it. My pleasure. Thanks, Charles. Yeah. Hey guys, this is Tim again. Just a few more things before you take off. Number one, this is Five Bullet Friday. Do you want to get a short email from me? Would you

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Pet Camera - EBO Air 2

The Tim Ferriss Show - #381: Charles Koch — CEO of Koch Industries

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Pet Camera - EBO Air 2

The Tim Ferriss Show - #381: Charles Koch — CEO of Koch Industries

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