The Battle for Cato

by Jerry O’Driscoll  

By now, most readers of ThinkMarkets are aware that there is a nasty battle for control of the Cato Institute. The Koch brothers have filed a lawsuit against Cato and two individuals. It made the front page of the New York Times earlier this week, and has been blogged about endlessly from all sides. I post this comment to offer some perspective.

I have been associated with Cato from its inception 35 years ago, and with the Kochs even before that. Charles Koch supported Austrian and libertarian activities and even attended some of them. He was approachable and happy to discuss ideas and strategy. There is now a bureaucracy surrounding his philanthropy, so I’ve had no contact with him in decades. I have only gratitude for the support provided me in the past.

I attended a two-day brainstorming summit when Cato got started. Then I spent a year at the Institute for Humane Studies in the Summer of 1977 when Cato was getting up and running in San Francisco. IHS was still in Menlo Park, CA, a short drive from Cato’s offices. That is where I first got to know Ed Crane.

I think I can say I was present from the beginning. I have since had some kind of relationship with Cato almost my entire adult, professional life. (I have never been a regular employee.)

The Koch lawsuit is fratricidal and suicidal. Even if the brothers are right on the merits of the case (which Cato denies, and on which I am not going to comment), it is a disaster for Cato and libertarianism – a cause on which the Kochs have spent millions of dollars over the years.

The aim of the lawsuit is, first, to gain effective control of Cato and oust Ed Crane from his position as president. Ed has built Cato into one of the most influential think tanks. And he is just coming off a successful $50 million capital campaign in most difficult economic times.  

Taking control is surely just a preliminary. Cato’s chairman, Bob Levy, has reported on conversations with David Koch and two family representatives, who wanted closer coordination between Cato and grassroots political organizations. Cato has always been nonpartisan, and a dealer in ideas not politics.

Cato has built up its reputational capital over 35 years as an independent think tank. Forcing a partnership with organizations aligned with the Republican Party would quickly destroy that reputational capital. Just the filing of the lawsuit has done damage.

Charles and David Koch are very intelligent men, and so must understand that. One must presume they have some overarching goal whose achievement is worth sacrificing Cato. Likely, it is a commitment to defeating President Obama and gaining control of both houses of Congress. I doubt that, in the end, Cato will be of much use in that political goal. The vagaries of lawsuits ensure a prolonged fight.

The battle also has implications for many other organizations. Almost every free-market group in Washington, D.C. receives support from the Kochs. True, most do not have the organizational structure (stock ownership) that makes Cato susceptible to a takeover. But large donors can bring pressure to bear on recipients. I have been assured by contacts in other think tanks that the Kochs have never done so. But they had not done so at Cato until recently.

Even if the Kochs do not pressure any other group to become more “political,” reasonable observers will suspect that might be the case. All other Koch-supported policy groups are at risk for their reputations because of the lawsuit against Cato.

Much is at stake.

For those wanting to stay abreast of the controversy, I link to a site that is tracking it closely.



Public Unions vs. the Real Underdog

by Chidem Kurdas

Wisconsin governor Scott Walker successfully made the financial case to limit collective bargaining by public unions. Not only have the unions imposed an immense burden on taxpayers, present and future, but they create bureaucratic rigidities that cause dysfunction and, in financial crunches, layoffs of promising employees.

Yet in recent weeks it has become noticeable that these points fail to persuade many Americans.  The Wisconsin bill that just passed and similar reforms in other states face furious opposition, including appeals to the public.  Perhaps it’s not a bad idea to highlight another aspect of government unions, in addition to the purely economic issues.

We need to understand why part of the public supports unions. The best explanation that I’ve seen is from Richard Epstein in Free Markets Under Siege, a 2005 book that analyzes unions and agricultural price supports as examples of cartels in different markets.  These cartels impose social costs and require special dispensation from antitrust law. Why did the rest of the population accept the costs?  “Never underestimate the enhanced political sympathy when the underdog seeks to gain state power,” Professor Epstein points out. Continue reading