Connecting a lot of dots-Joseph Stalin Helped Fund Walker's Attack on Public Education -Koch Industries, Inc. -- Company History

Koch Industries, Inc. -- Company HistoryCompany History:

Koch Industries, Inc., a diversified petrochemical company, is the second-largest privately held firm in the United States, trailing only Cargill. The bulk of Koch's revenue is derived from the transport of oil by pipeline, truck, and ship, but it also drills, refines, markets, and trades oil and gas products in the United States and around the world. In addition, the firm has substantial coal, chemical, and real estate interests, and raises many thousand head of cattle on ranches in Kansas, Montana, and Texas. About 80 percent of its multibillion-dollar assortment of assets is owned by two of the four sons of Fred C. Koch, founder of the company, while two other sons were bought out in 1983 after a bitter and continuing struggle among the brothers for money, corporate control, and pride. Traditionally a very secretive company, Koch has seen various lawsuits and investigations in the 1980s and 1990s pull away some of its veil.

Founder Battled Big Oil and Made Initial Fortune in the Soviet Union

The son of a Texas newspaperman, Fred C. Koch earned an engineering degree at Massachusetts Institute of Technology in the 1920s. Koch invented a new and more efficient method for the thermal cracking of crude oil, the process by which oil is heated to effect a recombination of molecules yielding higher proportions of usable compounds, especially gasoline. With the dramatic growth in the use of the automobile in the first quarter of the 20th century, refiners were constantly trying to improve their cracking technology, and Fred Koch's innovation was apparently good enough to draw upon him the wrath of the major oil companies. Protective of their tight control over every aspect of the oil business, the majors began a series of lawsuits against Fred Koch that would last 20 years and involve over 40 separate cases, eventually being resolved in 1952 when Koch won a $1.5 million settlement. Then as now, the international oil business was in the hands of only a few firms, which meant that Fred Koch would encounter the same obstacles wherever oil was bought and sold.

In the late 1920s there was at least one country in the world where oil was not bought and sold, in the usual sense--the Soviet Union. The Soviets had been trying to take advantage of their immense oil reserves since gaining power in 1917, and under Joseph Stalin the drive to industrial efficiency was pursued with ruthless speed but without the benefit of Western technology. Fred Koch offered to build oil refineries in the Soviet Union that would be more efficient than those in the West. The young engineer's ideas were welcomed, and he was awarded a large contract to coincide with Stalin's first five-year plan, beginning in 1929. The contract called for construction of 15 refineries for an initial fee of $5 million, from which Koch and his partner, L. E. Winkler, are said to have netted a $500,000 profit. Koch's work in the Soviet Union necessitated sojourns in that country, offering the Texas farmboy an intimate look at the Soviet system while providing the cash he would later need in building his U.S. empire.

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