Something the Koch brothers couldn't buy: The CATO institute

From the LATimes:

The Koch brothers’ attempted takeover of the libertarian Cato Institute has come to an end, at least for now.

Charles and David Koch — the Kansas billionaires at the center of a network of conservative financial and intellectual influence sometimes derisively called “the Kochtopus” — have reached an agreement that changes the structure of the Cato Institute in exchange for its current chief executive, Ed Crane, stepping down.

So ends one phase of a power grab that had tossed one of the most famous think tanks in Washington into confusion.

Who wins here? Everybody, as the Cato Institute’s official release on Monday would have it:

“For a majority of Cato’s directors, the agreement confirms Cato’s independence and ensures that Cato is not viewed as controlled by the Kochs. For Charles Koch and David Koch, the agreement helps ensure that Cato will be a principled organization that is effective in advancing a free society.”

The picture is, of course, more complex than the official party line.

“You could sum up the Cato case with two bullet points,” wrote Slate’s Dave Weigel,  a sometime contributor to the Koch-tied Reason magazine, in describing the institution’s perceived rebellion against the Koch takeover. “One: The Kochs wanted to hollow out a think tank and turn it into a political hack shop. Two: Nobody in the media would take the Koch-ified Cato seriously ever again. ‘Who the hell is going to take a think tank seriously that’s controlled by billionaire oil guys?’ Crane asked.”

The Koch camp, Weigel says, was worried that Crane had lost his way in navigating the think tank through aggressive liberal attacks on the right. Crane’s ouster clears the way for the institute, which is  nonprofit, to be governed by a board of 16 directors rather than four shareholders.

The Cato Institute has historically prided itself on independence — not for espousing party-line Republican conservatism but for straight-up, small-government libertarianism, which occasionally meant sacrificing sacred GOP cows when it came to  issues such as civil liberties. When the Kochs first announced they planned to sue — to essentially seize controlling shares of the think tank — Cato’s institutional wiliness reared its head among some current staffers.

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Aubrey McClendon: One of Americas Biggest Oligarchs

By Mark Ames: At the end of the 1990s, after the total collapse of the mass-privatization experiment in Boris Yeltin’s Russia, some of the more earnest free-market proselytizers tried making sense of it all. The unprecedented collapse of Russia’s economy and its capital markets, the wholesale looting, the quiet extermination of millions of Russians from the shock and destitution (Russian male life expectancy plummeted from 68 years to 56 years)—the terrible consequences of imposing radical libertarian free-market ideas on an alien culture—turned out worse than any worst-case-scenario imagined by the free-market true-believers.

Of all the disastrous results of that experiment, what troubled many Western free-market true-believers most wasn’t so much the mass poverty and population collapse, but rather, the way things turned out so badly in Russia’s newly-privatized companies and industries. That was the one thing that was supposed to go right. According to the operative theory—developed by the founding fathers of libertarianism/neoliberalism, Friedrich von Hayek, Ludwig von Mises, Milton Friedman and the rest—a privately-owned company will always outperform a state-run company because private ownership and the profit-motive incentivize the owners to make their companies stronger, more efficient, more competitive, and so on. The theory promises that everyone benefits except for the bad old state and the lazy.

That was the dominant libertarian theory framing the whole “shock doctrine” privatization experiment in Russia and elsewhere. In reality, as everyone was forced to admit by 1999, Russia’s privatized companies were stripped and plundered as fast as their new private owners could loot them, leaving millions of workers without salaries, and most of Russia’s industry in far worse shape than the Communists left it.

Most of the free-market proselytizers—ranging from Clinton neoliberal Michael McFaul (currently Obama’s ambassador to Moscow) to libertarian Pinochet fanboy Andrei Illarionov (currently with the Cato Institute)– blamed everything but free-market experiments for Russia’s collapse.

But some of the more earnest believers whose libertarian faith was shaken by what happened to Corporate Russia needed something more sophisticated than a crude historical whitewash.

Lucky for them, Milton Friedman provided the answer to a Cato Institute interviewer: Russia lacked “rule of law”—another neoliberal/libertarian catchphrase that went mainstream in the late 80s. Without “rule of law,” Friedman and the rest of the free-market faithful argued, privatization was bound to fail.  Here’s Friedman’s answer in the Cato Institute’s 2002 Economic Freedom of the World Report:

CATO: If we reflect upon the fall of communism and the transition from the centrally planned economy to a market economy, what have we learned in the last decade of the importance of economic freedom and other institutions that may be necessary to support economic freedom?

MILTON FRIEDMAN: We have learned about the importance of private property and the rule of law as a basis for economic freedom. Just after the Berlin Wall fell and the Soviet Union collapsed, I used to be asked a lot: “What do these ex-communist states have to do in order to become market economies?” And I used to say: “You can describe that in three words: privatize, privatize, privatize.” But, I was wrong. That wasn’t enough. The example of Russia shows that. Russia privatized but in a way that created private monopolies-private centralized economic controls that replaced government’s centralized controls. It turns out that the rule of law is probably more basic than privatization. Privatization is meaningless if you don’t have the rule of law. What does it mean to privatize if you do not have security of property, if you can’t use your property as you want to?

Others expanded on Friedman’s rationalization, arguing that without this “rule of law” to protect their private property, the new private owners of Russia’s industries were incentivized to plunder their companies as quickly as possible for fear that the state would steal their companies back. Of course, all this rationalizing was undermined by fact that Russia’s oligarchs stole their companies in the first place, and thieves do tend to steal what they’ve stolen. But never mind—the libertarian ideology was salvaged, as Russia’s privatization experiment was declared “not a real free-market” without Friedrich Hayek’s “rule of law” in place.

The reason I’m bringing this up now is because over the past month, one of America’s most rapacious oligarchs, Aubrey McClendon, was exposed by Reuters for plundering Chesapeake Energy, the second-largest natural gas producer in the country after Exxon-Mobil. McClendon, co-founder, CEO and until a few weeks ago Chairman of Chesapeake, was discovered running a hedge fund inside of Chesapeake, personally profiting on the side from large trading positions that his public company Chesapeake took in the gas and oil markets.

Reuters also discovered that McClendon took small personal stakes in natural gas wells bought by Chesapeake, then borrowed against the wells’ reserves from the same banks that Chesapeake borrowed from—basically, the banks kicked back sweet lending deals to McClendon on the side as McClendon arranged less-than-sweet loans to his publicly-owned company, Chesapeake, kicking profits from Chesapeake’s shareholders and employees’ pockets into the banks and into Aubrey’s accounts.

The loser in all this, as always: Employees, retirees, and shareholders. As Reuters reported, Chespeake is one of a small handful of companies whose employee 401k retirement packages consist mostly of Chesapeake stock, and the company requires employees to hold on to their stock for the maximum amount of time allowed by law:

Thousands of Chesapeake workers have retirement portfolios that are heavily invested in Chesapeake stock, which has declined sharply following revelations about Chief Executive Aubrey K. McClendon’s business dealings.

But while retail and institutional investors have sold the stock, employees don’t always have that option.

It’s not the first time McClendon has been caught plundering Chesapeake at the expense of shareholders, pension fund investors and employees: In 2008, McClendon bet and lost about $2 billion worth of Chesapeake Energy stock he owned—94% of Aubrey’s personal stake in Chesapeake– on a margin call when natural gas prices collapsed. Aubrey bet that natural gas prices would continue soaring, you see.

But like his peers in the oligarchy class, Aubrey’s loss became everyone but Aubrey’s loss: He was awarded a “CEO bailout” by his board of directors, who honored Aubrey with a $75 million “bonus” to bring his total pay in 2008 to $112 million, making Aubrey McClendon the highest-paid CEO in Corporate America that year. Even though Chesapeake’s earnings dropped in half, and its stock fell 60%, wiping out up to $33 billion in shareholder wealth.

Now, we’re learning, Aubrey was profiting in other ways off of Chesapeake that same year.

There is so much more to hate about Aubrey McClendon than this—the millions McClendon poured into Gary Bauer’s gay-bashing outfit “Americans United To Preserve Marriage” and the Swift Boat Veterans for Truth, the role McClendon and his Whirlpool heiress wife played in stealing waterfront land from Benton Harbor, an African-American slum and the poorest city in Michigan, in order to expand an exclusive golf course country club for residents of St. Josephs, where McClendon owns several plots of land. McClendon’s wife, Katie, is from St. Joseph’s; so is Katie’s cousin, Fred Upton, the Republican Congressman from St. Joseph’s. Aubrey and his wife are what pass for royalty (sans noblesse oblige) these days: Katie from the Whirpool fortune, Aubrey an heir to the Kerr-McGee fortune. (If you’ve seen the movie Silkwood, you might remember Kerr-McGee as the company that iced the labor union activist played by Meryl Streep.)

This is just one of many stories about how publicly-traded companies have been and can be transformed into elaborate schemes to loot and steal from the public and enrich a tiny handful of oligarchs. We saw this in the 1980s when Reagan deregulated the Savings & Loans, which were quickly transformed into a means of looting, fraud and plunder; we saw it in the 2000s, after the de-regulation of the financial sector.

The problem goes much deeper than Milton Friedman’s “rule of law” fetish. “Rule of law” is just another red herring diversion to provide cover for continued oligarchy plunder, failure and barbarism. The problem is systemic, and more importantly, ideological. We still operate under the same neoliberal/libertarian major premises we inherited from the Hayek-Mises-Friedman era, an ideology that considers notions like “the public good” to be quaint delusions at best—as opposed to today’s still-dominant, still-standing foundational ideology, which says that freedom equals the ruthless pursuit of individual self-interest, the unlimited acquisition of private property and wealth, framed within a cold, dystopian “rule of law.”

That is where the problem starts. That is why, every week, I could tell another story about another Aubrey McClendon or Dick Parsons, and it will never end until the ideology that enables them is buried.

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By Mark Ames: On Saturday, the tiny EU nation Slovakia held parliamentary elections, and the results surprised the “experts”: The center-left party Smer, derisively described as “populist” in the American media, won in a record landslide, the first time a single party will control the majority in parliament in Slovakia’s post-Communist history.

The “populist” Smer won on an unexpectedly large turnout of 60 percent –the so-called experts had been assuring readers there’d be a low turnout of 40 percent.

The high turnout reflects real suffering for the people of Slovakia that goes well beyond mere cynicism — they’re suffering from real, mass impoverishment, brought on by a decade of brutal free-market reforms, which hit the privatized pensions especially hard. That’s where we Americans come in, specifically the Cato Institute — but I’ll get to that in a moment.

Although there’s been almost no coverage of Slovakia’s mass protest movement, the country has seen the largest demonstrations since the Velvet Revolution. The protests were sparked in part by the “Gorilla” scandal, leaked recordings of Slovakia’s free-market politicians negotiating their bribes with bankers from a top hedge fund, Penta, in exchange for Penta’s lucrative privatization deals.

But what’s sustained the protests, and what brought people out to vote in droves for the “populists,” is the mass impoverishment that’s worsened life for most of Slovakia’s citizens — and first to suffer have been Slovakia’s pensioners, who are forced to subsist on roughly $400 per month.

Here’s where the Cato Institute, the libertarian think-tank founded by the Koch brothers, comes in — and where Slovakia’s problems become our problems.

In the early 2000’s, the co-chairman of the Cato Institute’s Project on Social Security Privatization, José Piñera, played a key role advising and overseeing Slovakia’s mass pension privatization, which passed in 2003 under the free-market government of Mikulas Dzurinda. Today, Slovakia’s retirees are groaning under the austerity pain administered to them by the Cato Institute.

José Piñera, who has led Cato’s Social Security Privatization Project since the 1990s, has a dark history of administering pain on a nationwide scale: Piñera served in the military junta under Chile’s Generalissimo Augusto Pinochet, first as Pinochet’s Minister for Labor, helping suppress unions in one of the most brutal dictatorships in the world; later, Piñera oversaw Pinochet’s radical privatization of Chile’s pension program.

Today, Chile suffers one of the worst wealth inequality problems in the developed world. And for the past two decades, José Piñera, working at the Cato Institute, has been trying to impose the same pension austerity on Americans.

It’s a match made in Hell: Cato and the Koch brothers have been pushing to dismantle Social Security since the Kochs up the Cato Institute in the late 1970s. Thanks to the Cato Institute’s tireless efforts, today dismantling Social Security is practically gospel in the Republican Party — and not far off the top of the “To Do” list for some “centrist” Democrats either.

Sacking Slovakia

Cato’s José Piñera was brought in to oversee Slovakia’s pension privatization only after the 2002 elections put in power the free-market rightwing Democratic and Christian Union Party, led by Prime Minister Mikulas Dzurinda. The pensions were privatized in 2003, along with a free-market program that lowered the top tax rate to a flat 19 percent, eliminated inheritance taxes, and generally shifted the burden down the economic scale.

The reforms were wildly unpopular with Slovaks, to the same degree that they were popular with Western bankers and banking institutions like the World Bank, which named Slovakia the world’s top economic reformer in 2004, and one of the top 20 business-friendly nations in the world.

In 2005, Bush’s ambassador to Slovakia co-authored a glowing article with Cato’s Marian Tupy, praising Dzurinda’s pension privatization, and noting Cato’s José Piñera’s role in making Slovakia’s pension reforms happen. In their article, they ominously compared Slovakia’s pre-reform pension “crisis” to America’s “crisis” in Social Security.

The timing of the joint Cato-Bush praise for Slovakia’s pension privatization was interesting for a couple of reasons:

First, because the same free-market government that Cato advised and Cato-Bush praised has now been implicated in cutting secret kickback deals with leading hedge fund to sell off Slovakia’s state assets in exchange for millions in bribes; and secondly, that year, 2005, was the year President Bush made his big push to privatize America’s Social Security program, with the Cato Institute as both the lead adviser and promoter.

The Bush-Cato plan to privatize Social Security began over dinner in 1997, when Bush was still governor of Texas. Ed Crane, the president of Cato, and José Piñera, Cato’s co-chair of the Social Security Privatization Project, flew to Austin to sell the future president on their plan to privatize Social Security.

According to the Washington Post: “Crane said that after Pinera’s presentation, Bush declared, ‘This is the most important policy issue facing the United States today.’”

As soon as Bush was elected President, he set up a commission to privatize Social Security, and staffed it with the Cato Institute’s free-market zealots. Unfortunately for them, the 9/11 attacks distracted the Administration. But in 2005, Bush made Social Security privatization his top priority for his second term — and once again, he put the Cato Institute in charge.

By the end of 2005, however, Bush’s presidency was practically in tatters as the country turned against his wars, and Hurricane Katrina made privatizing Social Security politically impossible. The project to do to America what Cato did to Slovakia was essentially abandoned, and the Cato Institute turned critic of Bush’s war on terror policies.

A Family Project

Lately, Cato’s José Piñera has seen his younger brother, billionaire Sebastian Piñera, making international news as Chile’s most unpopular president since democracy replaced the free-market military junta of Generalissimo Augusto Pinochet in 1990.

Thanks to younger brother Sebastian’s free-market privatization of Chile’s education system, the country has erupted in nationwide protests and violence on a level not seen since, well, Generalissimo Pinochet overthrew Chile’s democratically elected government in 1973, and installed a brutal regime that crushed dissent and murdered and tortured thousands — handing the economy over to free-market fanatics including Friedrich von Hayek, Milton Friedman, and Sebastian’s brother, José Piñera.

Neither age, nor time, nor working at the American-based Cato Institute, dining with future presidents and convincing them to gut the population’s Social Security, has mellowed this former Pinochet sidekick’s distaste for democracy. As Piñera wrote in 2003,

“To hand over a blank check to inherently unstable majorities concerning virtually all the major economic, social, and political issues of a society is to institutionalize instability, open the way to more serious abuses, and condemn a country to underdevelopment. How is anyone to make rational decisions about work, savings, and investment if key variables — such as taxes, labor legislation, and regulations — can be altered by 50.01 percent of the citizens through a vote that, in countries with low levels of education, can almost never be said to show the characteristics of an ‘informed vote’?”

On Saturday, the Slovaks voted overwhelmingly to reject the damage and plunder that the Cato Institute’s advisers wreaked on that tiny country’s citizens. Naturally, to free-market zealots like the Piñeras, the Kochs, the Cato Institute and the rest of the oligarchy’s minions, this only proves their point about why democracy must be “limited.”

The people can’t be relied on to vote the way oligarchs want them to — they can’t be relied on to react with cynicism and defeatism to all the news of political and corporate corruption.

The hope among the elites in Slovakia and elsewhere was that the voters’ mass impoverishment and anger would lead to a withdrawal from politics — but the high voter turnout turned out to be perhaps the greatest victory for the people of Slovakia. The politicians are to be expected to sell out and disappoint — but the more engaged in their democracy the people are, the more power they’ll have to eventually change their politics for the better, and finally bring an end to the rotten politics of oligarchy and plunder that mark our age.

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