Greasing The Skids

Julian Sanchez is indignant about current journalistic standards and our expert on journalism ethics, Megan McArdle, once again echoes his words.

[McArdle]:The Telecoms industry is apparently even more insidious than I thought:

[Sanchez]Via some outfit called VoIP News, I'm intrigued to learn that my insidious paymasters at Cato number among the 15 greatest enemies of net neutrality. Scary! Turns out Cato is a "hired voice of reason" which, along with CEI "seems to draw its funding from a smattering of every major corporation ever to fund lobbyists." Damning stuff! And these guys are Totally Serious Journalists, so they did some kind of due diligence and fact checking, rather than just pulling this stuff out of their asses, right?



Well, hey, no, I mean, I'm sure Cato is totally shady about its funding sources--how could they possibly check this stuff?

What's that? Annual report? Freely available online, you say? Well, and so we get tons of our budget from... Huh? One percent from corporations? None from telecoms in 2008?

Now, obviously serious reporters wouldn't just utterly fail grade-school level fact checking. Clearly, some devious ISP must have blocked them from reaching this easily accessible information! Further demonstrating the need for Net Neutrality!

The fact that all free market, small government efforts are entirely funded by a combination of three scary billionaires, and a bunch of big self-interested corporations, is a sort of stylized fact among a certain portion of the progressive media. Apparently, checking this theory would be like trying to get three separate sourcs to tell you that the sky is blue.

Cato's 2009 funding includes individuals (82%), foundations (10%), corporate (1%) and other (7%).[pdf] The foundation donors gave $612,000. to Cato, and include (in 2006) Verizon, Time Warner, Comcast, National Association of Software and Service Companies, Freedom Communications, and Microsoft. But this information is only the most obvious of obfuscation. There is more.

Last fall, when News Corporation owner Rupert Murdoch joined the board of directors at the Cato Institute, the announcement went unreported in major media. Perhaps it seemed routine for one of the world's most powerful media moguls to take a leadership post at one of the most influential think tanks in Washington.

At future meetings, Murdoch can count on rubbing elbows with his fellow media titan, John C. Malone--president and CEO of Tele-Communications Inc. (TCI), the largest U.S. cable operator--who has been on the Cato board since 1995. The two men are well acquainted, and their companies have long been intertwined in media deals involving satellite television, cable TV, program distribution and other big telecommunications ventures. Now the heads of both firms are formally helping to run a think tank which boasts that it has "actively promoted the deregulation of the television and telephone industries."[my bold]

In recent years, the Cato Institute has neared the top tier of think tanks in the United States—on Capitol Hill and in the nation's news media. In the 1996 book No Mercy: How Conservative Think Tanks and Foundations Changed America's Social Agenda, Jean Stefancic and Richard Delgado write that the Cato Institute "played a key role in forming the ideas and policies of the new Republican majority in Congress." These days, "congressional committee chairmen increasingly look to Cato scholars for testimony."

[snip]

Broadcasters like Murdoch benefit greatly from federal giveaways. Holding frequency licenses worth fortunes, they're now receiving free slices of a digital spectrum valued at up to $70 billion. Likewise, cable TV conglomerates—with Malone's TCI in the lead—continue to expand under the protection of federal regulations that place severe limits on the power of municipalities to charge franchise fees for the use of public rights-of-way. While lauding the "free market," Murdoch and Malone rely on the federal government's aid in their quest for media monopolization. The contradiction doesn't seem to bother the Cato Institute at all.

[snip]

Announcing that Murdoch had joined its board, a Cato news release (9/22/97) praised him as "a strong advocate of the free market" and quoted his stirring words: "I start from a simple principle: In every area of economic activity in which competition is attainable, it is much to be preferred to monopoly." (This from someone with 70 percent penetration of the newspaper market in Australia.)

Smoking hired guns

[snip]

'Funny funding'

Major media outlets have routinely turned a blind eye to the corporate financial backing for Cato and other large think tanks in Washington. Few reporters or pundits focus on the conflicts of interest involved.

[snip]

In their book No Mercy, University of Colorado Law School scholars Stefancic and Delgado describe a shift in Cato's patron base over the years. Cato's main philanthropic backing has come from the right-wing Koch, Lambe and Sarah Scaife foundations. But today, Cato "receives most of its financial support from entrepreneurs, securities and commodities traders, and corporations such as oil and gas companies, Federal Express and Philip Morris that abhor government regulation."

Financial firms now kicking in big checks to Cato include American Express, Chase Manhattan Bank, Chemical Bank, Citicorp/Citibank, Commonwealth Fund, Prudential Securities and Salomon Brothers. Energy conglomerates include: Chevron Companies, Exxon Company, Shell Oil Company and Tenneco Gas, as well as the American Petroleum Institute, Amoco Foundation and Atlantic Richfield Foundation. Cato's pharmaceutical donors include Eli Lilly & Company, Merck & Company and Pfizer, Inc.

Friends in the media

While serving on Cato's board and making personal donations, TCI's John Malone is among many other media and telecommunications heavies behind Cato. Big donors include Bell Atlantic Network Services, BellSouth Corporation, Digital Equipment Corporation, GTE Corporation, Microsoft Corporation, Netscape Communications Corporation, NYNEX Corporation, Sun Microsystems and Viacom International. It's understandable that Cato's news releases--while constantly urging privatization of the Internet and other communications systems--do not mention where Cato money is coming from. But it's inexcusable that media coverage seldom includes such information.

Even when Malone makes a public appearance for the Cato Institute, reporters seem uninclined to shed light on the array of corporate funding that makes Cato possible. When Malone spoke on "Telecommunications in the 21st Century" at a Cato seminar luncheon in Denver, a pair of articles in the next day's Denver Post (11/15/96) gave extensive coverage to Malone's comments--and identified Cato only as "a libertarian think tank."

Cato's newest board member, Rupert Murdoch, is a global media giant whose U.S. possessions include the Fox television network, TV Guide, the tabloid New York Post, HarperCollins book publishers and the 20th Century Fox movie studios. Along the way, lax federal regulation has swelled the profits of Murdoch's News Corp., now a $28 billion conglomerate. As a 1997 New York Times article noted (3/31/97), his 10-year-old Fox TV network "could never have succeeded if it had not received generous treatment at the Federal Communications Commission."

Naturally, turning such big governmental wheels requires lots of political grease. In 1996, Murdoch donated $1 million to the California Republican Party, while News Corp. gave another $654,700 in "soft money" to the national GOP. In Murdoch's native Australia, News Corp. dominates the mass media. In Britain, Murdoch controls more than a third of daily newspaper circulation along with much of cable and satellite television. While using his media outlets to push for the slashing of government social services, Murdoch was a pioneer in union-busting within the newspaper industry.

Murdoch is likely to have a long and harmonious presence on the Cato Institute's board of directors.

Where did Cato's initial funding come from? Two guesses. No, you'll only need one.

"You know us better than you think," boast the ads of Koch Industries, a conglomerate owned by reclusive billionaire brothers Charles and David Koch. And it’s true: Most of us have unknowingly wolfed a burger ground from Koch beef, ridden on tires made from Koch’s Trevira polyester, or escaped the rain beneath a roof covered with Koch asphalt.

But there’s a darker side to the boast. Turn on National Public Radio most any afternoon, leaf through a newspaper or news magazine, watch a congressional hearing, or surf the Internet, and you will likely encounter the thoughts of Charles and David Koch (pronounced "coke"). The views will seem to be coming from an independent think tank–the Cato Institute or Citizens for a Sound Economy, for example. Yet behind these groups stands the brothers’ vast fortune: Koch Industries is the nation’s second-largest privately owned company and the largest privately owned oil company, with annual revenues of more than $30 billion. Charles cofounded Cato in 1977; in 1986 David helped launch CSE. The brothers are following in dad’s footsteps: Fred Koch was a charter member of the ultraconservative John Birch Society in 1958.

Today, Koch money–and cash infusions from corporate allies such as Exxon, Philip Morris, General Motors, and General Electric–funds industry-friendly messages that fill our airwaves and editorial pages, and influence outcomes in the halls of Congress and courtrooms across the country.

Consider, for example, Citizens for a Sound Economy, the Washington, D.C.—based organization bolstered by periodic bursts of funding from both cofounder David Koch and brother Charles. CSE is often described as a "consumer group," but according to internal documents leaked to the Washington Post, 85 percent of CSE’s 1998 revenues of $16.2 million came not from its 250,000 members, but from contributions of $250,000 and up from Koch Industries as well as other corporations, including U.S. West and Philip Morris.

What kind of exposure can such money buy? In 1995, for instance, CSE’s $17 million budget (made possible that year with grants from the Kochs, Archer Daniels Midland, DaimlerChrysler, and General Electric, among others) was spent producing more than 130 policy papers, delivering them to every single congressional office, sending out thousands of pieces of mail, and getting coverage of its viewpoints in more than 4,000 news articles around the nation. CSE’s representatives have appeared on hundreds of radio and television shows and published 235 op-ed articles. What do they tell us? Among other things, that "environmental conservation requires a commonsense approach that limits the scope of government," acid rain is a "so-called threat [that] is largely nonexistent," and global warming is "a verdict in search of evidence."

These opinions were echoed on MSNBC, C-SPAN, PBS’s NewsHour With Jim Lehrer, and elsewhere by representatives from the libertarian Cato Institute. Cato "experts" are working hard to pound home a variety of anti-environmental points. They have argued that the global ban on chlorofluoro-carbons–the chemicals that destroy stratospheric ozone–is a case of science being "distorted, even subverted." They’ve suggested that concerns over lead paint, asbestos, radon, and similar in-home poisons amount to "hysteria." And they’ve maintained that federally funded research at Harvard and other universities–used, for example, in the regulation of air pollution–"has frequently been tainted by poor methodology . . . and even borderline cases of fraud."

Fashioning themselves after the very university research centers they deplore (or old-style "think tanks" that are only a step removed from universities), these groups have neither the neutrality nor the expertise of their academic counterparts. They are simply self-described as "libertarian" or "market liberals," as if this explains why their conclusions differ so sharply from those of academic or government researchers. No mention is made of the corporate money that is lavished on them–or the corporate agenda, which is, at heart, their raison d’être.

Indeed, if the voices denying the existence of global warming or decrying tighter fuel-economy standards were obviously those of the oil, coal, auto, and similar industries, the messages would be seen for what they are–half-truths at best, and outright lies at worst–and ignored. But when the voices appear to be those of disinterested, public-spirited organizations advocating "economic freedom" or "sound science," the messages are often accepted uncritically by journalists–and then by the public at large.

[snip]

Cato and CSE are only 2 of roughly 300 industry-funded groups that are helping businesses and the wealthy convert their vast economic and market power into political might. Their messages are invariably the same: Government regulation–most especially environmental protection–is bad, and any science that justifies it is "junk." Usually these messages are reinforced by money deployed to campaign coffers.

[snip]

Corporate think-tank influence extends even into the branch of government designed to be immune to it: the judiciary. Some of that influence is exerted by intervention in lawsuits to make arguments that favor industry. In 1999, for example, the Citizens for a Sound Economy Foundation, the funding arm of CSE, paid for "friend of the court" briefs that sought to declare the Clean Air Act unconstitutional. Where might a nonprofit charity like CSEF come up on short notice with the money required to pay lawyers who can charge $5,000 an hour? Answer: the Claude Lambe Foundation, also controlled by the Kochs, which gave CSEF $600,000 for "general operating support"; the DaimlerChrysler Corporation Fund, which kicked in another $250,000; and General Electric, which matched the DaimlerChrysler Fund’s donation. There’s no way of knowing whether that $1.1 million paid for the legal briefs, but that amount buys a lot of lawyers, even at Washington prices.

[snip]

Central to the functioning of American democracy is a judicial system that dispenses justice with an even hand. Yet CSEF, FREE, and other like-minded groups seem intent on reshaping the judiciary in their own image. Chief among these groups is the shadowy but powerful Federalist Society. Another regular recipient of Koch largesse, the Federalist Society is described by the Washington Monthly as "the best-organized, best-funded, and most effective legal network operating in this country." (See "Lay of the Land," March/April 2002.) Lawyers who belong to or are active in the society include at least two Supreme Court justices–Antonin Scalia and Clarence Thomas–as well as dozens of other federal judges, Attorney General John Ashcroft, Solicitor General Ted Olson, and Secretary of Energy Spencer Abraham. The society boasts a total membership of "20,000 legal professionals [and] active chapters in 60 cities." Yet, according to its 1998 federal tax return (which was provided to me when researching this story and which mistakenly included its list of donors), the Federalist Society’s income that year included $4,934,325 in grants from the Kochs’ and other such foundations but zero–yes, zero–in membership dues.

The full extent of industry funding for these myriad front groups is impossible to determine with certainty. Although information on donors is provided to the Internal Revenue Service, this is not (for the most part) available to the public. However, bits and pieces gleaned from searching a variety of databases–the Foundation Directory Online, for example–can be stitched together to provide a rough idea of the scope of special-interest spending. According to one such tally, the Kochs gave more than $21 million to the Cato Institute alone between 1977 and 1994. And in 1999, at least $1.4 million came to CSEF from just two of the several foundations controlled by the Kochs.

For Koch Industries, the amounts of money it can save by sabotaging environmental rules make the sums diverted to the think tanks that do the dirty work pale in comparison. The year 2000 was particularly rough for the Kochs. In January, Koch Industries agreed to pay about $35 million for violations of the Clean Water Act related to 310 oil spills in six states. Two months later, Koch admitted to environmental violations at its oil refinery in Rosemount, Minnesota, and was forced to cough up another $8 million in penalties. Then in July, it agreed not only to spend about $80 million to cut emissions from its Rosemount facility and from two other refineries in Texas, but also to pay a $1 million fine for air-pollution violations.

The Koch brothers’ fortune is generated a dollar at a time from its complex web of industries. Like drops of water falling from a swollen cloud, the profit stream forms trickles, rivulets, then rivers, finally flowing to industrial impoundments, where a small fraction is released in controlled, coordinated flows. Some of that money goes to pay fines and operate machinery. But a nice pool of it is directed toward Cato, Citizens for a Sound Economy, and CSEF and other foundations. All so you can know them better.

When oil companies itch, libertarian think tanks scratch. The Koch billions came from oil and gas and refining. They are the second largest privately owned company in the US and had annual sales of $100 billion in 2008.

David [Koch, son of founder Fred Koch] has always been the most politically active member of the Koch family, and ran as the Libertarian Party vice presidential candidate in 1980. Along with brother Charles, in the late 1970s David Koch created groups that matched his stong libertarian ideology. Charles cofounded the Cato Institute in 1978 with Paul Crane. The brothers provided the seed money to Citizens for a Sound Economy and the Institute for Justice. Other Koch projects include the Center for the Study of Market Processes and the Institute for Humane Studies. The brothers continue to fund their projects and others that match their ideology through the David H. Koch Charitable Foundation, the Charles G. Koch Charitable Foundation, and the Claude R. Lambe Charitable Foundation.

Would libertarianism have any influence at all if it were not for the Kochs' oil and gas money? An energy conglomerate wants deregulation of its myriad interests and therefore funds libertarian think tanks that put out supposedly impartial studies and funds supposedly impartial journalists that advocate for deregulation. And schmucks like McArdle pat themselves on the back for their lofty ideological principles and journalistic integrity. They are a curious mixture of calculated whoring and innocent pride and self-respect, and while I understand that it is easy for them to compartmentalize their repressed emotions, I'm still amazed at it every time.