Charles G. Koch's Market Based Management

I was pleased to receive an invitation to a market based management program hosted by the Charles G. Koch Charitable Foundation. In preparing for the conference I am taking a few days to read the materials the organizers have provided. Among these are Michael Polyani's essay "The Republic of Science," chapter two from Hayek's Law, Legislation and Liberty entitled "Cosmos and Taxis," Hayek's essay "Use of Knowledge in Society" (which I assign to my senior seminar students), and an excerpt from  Bastiat's essay "The Law."

Also included in the materials is Koch's book The Science of Success: How Market-Based Management Built the World's Largest Private Company.  The book is engaging and eminently readable. Koch describes the history of his firm and how he built his father's small oil industry services firm into the largest privately held company using basic principles of economics (specifically including the Austrian economics of Ludwig von Mises) and his philosophy of market based management.  Koch is perhaps too kind to his competitors. Few large firms are run using principles of economics, and big business tends to be inefficient and suppressive as a result.  Most of America's larger firms would not survive a competitive economy; if you doubt that, witness what happened to the automobile industry once faced with foreign competition.

Koch's market based management philosophy includes five dimensions: vision, virtue and talents, knowledge processes, decision rights and incentives.  Koch's focus and hard nosed thinking, which he attributes to his philosophy and to application of economics to management decision making, have enabled his firm to grow into a $100 billion (in sales) superstar, a nimble, huge company that keeps on growing.  His recent acquisition of Georgia Pacific for $23 billion has been a success, and success is rare in the area of mergers and acquisitions.

I am looking forward to the Koch conference. The attendees are a very impressive group and the material promises to be of great interest.