OCTOBER 2016 Discovery THE QUARTERLY NEWSLETTER OF KOCH COMPANIES

Innovation: everyone’s job

How important is innovation to improvements to be innovations. To 70 are usually incremental improvements, the success of Koch Industries? continue to succeed, we must have maybe 20 are new ideas and only 10 are truly “Innovation,” says , bottom-up innovation,” insists Koch. disruptive innovations. “is essential to realizing our Vision. “It also requires looking outside the “But that 10 percent — like the development “If we are to create value for customers company for new ideas.” of MBM® and ’s work on bio-derived using fewer resources and do so faster chemicals — can drive a much higher than others, we must find ways to IDEAS UPON IDEAS percentage of new value creation.” acquire and share existing knowledge, Matt Ridley (see page 7) argues that ALWAYS INNOVATING and then combine it in new ways. innovation comes from recombining “We have two goals in this regard,” Koch existing ideas in new ways. “Ideas must “Continuous improvement should be said. “First, we want our companies to be free to have sex,” he says. “Leave a part of the daily activities of us all,” be more effective innovators. But just as people free to exchange ideas and back Pittenger said. He points to Koch’s four- important is getting every employee to hunches, and innovation will follow.” fold innovation process for businesses and individuals (see pages 4-6) as essential for become more innovative.” Self-driving cars (which combine identifying and evaluating innovations. transportation technology with artificial FREEDOM OF IDEAS intelligence) are an example of this. But “We want to focus on combining the right Koch’s approach to innovation so are many of the simpler things in life. things to help solve the right problems and emphasizes new combinations of to avoid the pitfall of pursuing our initial The typical computer mouse, notes existing ideas, rather than being limited ideas without challenge and testing.” Ridley, is a combination of lasers (an idea to internal ideas or new technologies. patented in 1960), transistors (an idea Koch’s Vision, he notes, calls for innovation Nor do innovations have to involve created in 1947) and inexpensive throughout our businesses and capabilities. technology at all. Innovation is just as (an idea that hit the market in 1907). “Our continuing success depends on important for methods, processes and “Even though innovation is one of our all employees contributing to innovation management. It should be given the seven capabilities, our innovations are based upon their unique skills and same emphasis in sales and marketing, not generally technological marvels, like knowledge,” adds Charles Koch. tax, accounting or human resources as flying cars,” says John Pittenger, senior for information technology. “Our goal is for every employee to be vice president of strategy for Koch. an innovator.” Another mistake is to think of “For us, it’s more about our management innovation as a job for geniuses or philosophy, continuous improvement, the R&D department. At Koch, THIS ISSUE... creating value in new ways for customers, innovation is everyone’s job. sharing knowledge and adapting 3 Building the City of Wine “Sometimes people question whether innovations from other fields.” 4 Innovation Framework an improvement they are making in Pittenger estimates that out of every 100 7 How new ideas emerge their business qualifies as an innovation. new projects Koch undertakes, about 8 Changing the world: Charles Koch Of course it does. We consider all Letters and other submissions become the property of Koch Industries, Inc., and may be reproduced in whole or in Postal Pipeline part, including the author’s name, for any purpose and in any manner. Letters may be edited for length or clarity.

My oldest son is now an employee of . While we are separated by distance, his passion for his career and the joy expressed in that career unite us.

For decades, Koch Industries (the largest shareholder of Colonial) has supported through its employment practices the type of equality and respect for all individuals which society is striving to achieve.

For decades, Koch Industries has been a leader in providing Throughout high school, my son, Robert America and the global community the resources Kloha, has entered a state competition necessary to advance the economic welfare of all. called SkillsUSA (a competition of technical abilities for skilled trades). I have no gift which can express my heartfelt appreciation The competitions are set up by industry for all Koch Industries has done for this great nation. and run at industry standards for entry- All I can offer is my prayer, “Peace be with you.” level workers. Richard A. Matthews This year, Robert won first place in his Wexford, Pennsylvania field for the state of Ohio. That qualified him to compete at Nationals, held at the I am an undergraduate student at a liberal Thank you so much to Flint Hills end of June in Louisville, Kentucky. arts college in Atchison, , where Resources for the scholarship that will To his surprise and mine, he then learned I am rigorously researching different help me further my college education. that the Charles Koch Foundation and economic policies that are in accord with My family really appreciated the banquet Koch Industries were matching sponsors the principles of freedom and justice. honoring all of the recipients. with mikeroweWORKS, donating $50,000. These principles are perfectly in accord Also, thank you for being an inspiring With so many of our businesses relying with everything I read in “,” company. I am most grateful for this on skilled labor, I thought this was a very including the role of an entrepreneur in opportunity and for the generous support. positive event. increasing a society’s standard of living, Lucia Zats the necessity of creative destruction, and Eagan, Minnesota He was proud to say that his mom worked value creation that results in authentic, at a Koch company. And I was not only good profit. Since 1991, Flint Hills proud of my son, but the company I Resources and the work for. I am deeply thankful for your principled understanding of the role of business Michelle Wiandt, controller have awarded more in society. Koch Knight, LLC than $800,000 in scholarships East Canton, Ohio Noah Setter to hundreds of Benedictine College Koch Industries and the Charles Minnesota students. Koch Foundation not only support Atchison, Kansas Lucia is now mikeroweWORKS, but donated a total of enrolled at Coastal $250,000 for Work Ethic Scholarships Carolina University this year for those who are interested in in its School of I always enjoy reading the Discovery learning a skilled trade. Environmental Studies. magazine. The April article about Mr. Discovery Applications for next year’s scholarships Hougland (“Good as gold — twice”) was October 2016 will be accepted beginning early next particularly interesting as I am a big fan If you happened to Volume 22 | Number 4 year. More information can be found at: miss Charles Koch’s of U.S. basketball, both NBA and college. I DISCOVERY ONLINE kochind.com/mrw Founder’s Day video appreciate your effort. KOCHnews.com/media- on Sept. 23, it — and resources One thing I believe could add value for all of his previous Koch as a whole is our Skype for Business Founder’s Day EDITORIAL BOARD promotion in Japan. It was introduced in a messages — are now Susan Armitage monthly video here at in June. available at: Philip Ellender bit.ly/2cE6pev Jeff Gentry Please let me know if you are interested. Greg Guest Charles Koch Tetsuji Katsumura, controller Steve Lombardo Molex Japan Walt Malone Dave Robertson Katsumura’s suggestion has been included in this issue’s feature article on innovation, which begins on page 4. EMAIL US Opening night at the SkillsUSA national [email protected] conference in Louisville. www.KOCHind.com

2 © 2016 Koch Industries, Inc. Koch is an EOE. M/F/D/V. International News

Shanghai — INVISTA has successfully started up its new 215,000-ton HMD plant and 150,000-ton polymer plant at the Shanghai Park in China. Following its 2014 groundbreaking, construction work on the project achieved nearly 10 million safe work hours.

The new facilities utilize INVISTA’s most advanced and innovative technology to produce HMD and nylon 6,6 polymer that ultimately become part of air bags, automobile parts, carpet fibers, workout apparel and outdoor equipment.

Bill Greenfield, president of INVISTA Intermediates, sees Asia — and China in particular — as a region that still has plenty of long- term growth potential in demand for nylon 6,6.

“Through these local production assets,” Greenfield said, “we can provide better service and shorter lead time, further demonstrating our commitment to supporting regional demand.”

INVISTA Performance Technologies recently announced Xinjang Blue Ridge Tunhe had successfully started its nearby PTMEG production line utilizing technology licensed from INVISTA.

Polyetramethylene ether glycol, which looks like white candle wax when cool, is used to make spandex fibers and polyurethane elastomers. Those elastomers are crucial for producing a wide range of products including seals, gaskets and gel pads.

“The successful startup of our PTMEG line demonstrates the advancement of INVISTA’s THF/PTMEG technology,” said Mr. Li Peng, chairman of Tunhe. “We look forward to extending the successful cooperation between Tunhe and INVISTA over the long term.”

Bordeaux — Coming up with an innovative product — such as exterior that can Bordeaux be bent, colored and coated without losing its structural integrity or solar control — is often just the first step in creating something new.

It’s the combination of ideas and innovations, like putting that glass in the hands of someone who imagines a new use for it, that often leads to something unique and even more innovative.

That’s exactly what happened in Bordeaux this year when two types of solar-control glass made by Guardian Glass Europe were selected for La Cité du Vin (the City of Wine) building in Bordeaux, . Its construction workers, in effect, were asked to sculpt with glass.

The 14-story structure required about 900 glass panels — each one a different size and with a unique curvature — to create the flowing, liquid-like surface envisioned by the architects. The highly specialized colored glass lets light in but keeps heat out.

Guardian (44 percent of which is owned by Koch) has also discovered how to make glass that lets light in but keeps cold out — a requirement for a much different sort of Skuta Mountain experimental building.

DISCOVERY ONLINE That’s why European architects working with students at the Harvard Graduate KOCHnews.com/media- School of Design chose Guardian glass for a unique shelter on Skuta Mountain in the resources Slovenian Alps.

The glass specifications called for twice the wind resistance of most high-rise buildings and the ability to provide thermal insulation when the Bora (northeasterly winter wind) pushes temperatures well below zero for days at a time.

Now operational at a site 2,000 meters above sea level, the bivouac provides a safe, comfortable and efficient shelter for up to eight people.

“Despite its relatively small size, this was no less demanding than a large building project,” said Domen Komac, European integrator manager for Guardian glass. “Maintaining a safe and comfortable interior environment was a real challenge, EMAIL US especially in these extreme conditions.” [email protected]

3 A FOUR-FOLD APPROACH Innovation

If we want to grow and innovate, we have to be open to different ideas. – Charles Koch

Koch Industries’ emphasis on innovation has been a popular news Georgia-Pacific then expanded its R&D organization story in recent months. Delta Airlines’ Sky magazine, The Wall Street to include a broader mix of perspectives, knowledge Journal, a Fortune tech conference (streamed worldwide) and Popular networks and diverse skills and knowledge. For Mechanics have all reported on innovations at Koch. example, GP formed a unique partnership with the Complex Carbohydrate Research Center at the Innovation is attracting a lot of attention inside Koch, too. For the University of Georgia. past six years, Koch has hosted an Innovation Summit for all Koch companies. And work is continuing on Innovation University, an This new partnership led to several hypotheses about internal site with workshops, tools, videos and interactive lessons. what could be developed from a modified cellulose platform — such as new ways to bind What follows on these pages are examples of innovation by Koch (a major source of odor in soiled diapers). companies and employees, and explanations of the innovation frameworks used by both. PART 3: TEST AND LEARN IN THE MARKET “After those first two steps have helped us develop a DISCIPLINED DISCOVERY plausible hypothesis worth testing,” Pittenger says, As mentioned in the cover story, Koch now employs a four-part “we need to start experimenting with our preferred innovation framework (rather than a rigid process) that all businesses solutions in the marketplace. and capabilities can use to achieve better results. “Success in the real world requires well-designed “GP’s fluff pulp business is a great example of this four-part process and executed experiments. We want to find out what in action,” says John Pittenger, Koch’s senior vice president for doesn’t work as quickly and inexpensively as we can. strategy. “It also illustrates how new products can be created by That way we can learn and adapt so we have a greater recombining old ideas in new ways.” chance at success. Our saying is, nail it, then scale it.”

PART 1: DEFINE THE PROBLEM “An important habit,” Pittenger With this in mind, GP’s fluff pulp business says, “is to ask ourselves what challenge we’re trying to solve, or approached private-label diaper manufacturers what opportunity we’re trying to capture.” willing to test and market the company’s new “engineered cellulose” product. GP knew that many diaper manufacturers were interested in creating a thinner diaper that was just as absorbent and performed as well as PART 4: COMMERCIALIZE THE INNOVATION old designs. Better odor control was also on their wish list. “Finally, in order to create value, we have to use the full force of our organization to implement the When one manufacturer introduced an ultra-thin diaper with a innovation in the most effective way.” fluffless core, the pressure to innovate became even stronger. A positive response from private-label customers PART 2: DIVERGE AND CONVERGE “Once we have a specific enabled GP to increase its production quickly. GP problem in mind, we can access our knowledge networks and work also began to think of other applications for the through a wide range of possible combinations (that’s the divergence innovation, such as bandages, tissues and towels. part), then rapidly narrow our focus (converge) to the critical few that seem to offer the best potential.” GP proved that many of the best innovations come from recombining existing ideas in new ways. A small group of engineers took advantage of their company’s willingness to invest in diaper experiments at existing GP facilities. “GP took 100-year-old technology and recombined Those engineers wanted to test whether they could use known it with contemporary knowledge from biochemical, chemistry to modify pulp and create novel properties. In other words, paper-making and chemical networks to create could they use something old to create something new? The early something that has been a hit with consumers.” results were surprisingly positive.

4 A PERSONAL APPROACH Attura, a native Italian, loves telling the story about “We also have a four-part innovation framework for employees,” says the Koch-Glitsch employee in Italy who came up with a Charles Koch, chairman and CEO of Koch Industries. “This is just as remarkable new way of assembling structured packing important as our business framework, because our goal is for every elements (the complex layers of corrugated metal employee to become an innovator. that help promote a better mix of vapor and liquid in a distillation column). “This framework helps us formulate and test our hunches about better ways to do things.” “Assembly of structured packing is very labor-intensive,” Attura explains, “and we were looking for a better way to PART 1: THE RIGHT ROLE Koch says that all team members — especially secure all the layers of metal.” those with uncommon skills — need to focus on the application of those skills and not get distracted by activities that others could perform. Paolo Iannone, a 21-year employee who is now the manufacturing lead at Koch-Glitsch’s Vinchiaturo plant, “As an employee, you need to be in a role that fits your comparative grew up in a family that used to make mattresses. He advantages,” Koch says. “That’s the essential starting point. And once began to wonder if there was a way to “sew” pieces of you’re in that role, you must stay focused on it. In economics, we call this metal together the way his family used to sew the thick the division of labor by comparative advantage. fabric of mattresses. “So, for example, as I wrote in my book, “Good Profit,” it would be a mistake to ask me to sing tenor in an opera company. That’s not my comparative advantage. Similarly, it would probably be a mistake to ask a star tenor to lead a large manufacturing company.”

PART 2: THE IMPORTANCE OF PROGRESS “We all need to recognize that we can always be better. We should never settle for the status quo, because there will always be a better way to do something,” Koch insists.

“Throughout history we have repeatedly learned that the science is never settled and that technology and methods can always be improved.

“For centuries, people accepted Aristotle’s theory that heavier objects fall faster, something Galileo later disproved. The same dangerous assumption is true for technology.

“That’s why we must constantly drive creative destruction better and faster than our competitors rather than relying on temporary advantages. If we don’t, we will go out of business.”

PART 3: LEARN FROM OTHERS Charles Koch believes that every Paolo Iannone’s great-grandfather (above), a mattress employee should try to constantly learn from others — both inside and maker, inspired a new way of assembling structured packing at Koch-Glitsch. outside the company.

“It’s important to learn what others in your field are doing, especially improvements,” Koch says. “It also helps to learn about any relevant Iannone approached a modern manufacturer that technologies or methods that could be helpful, whether they come from made industrial sewing machines and asked if it could Koch, competitors or different fields. somehow adapt that technology for metal. “They “Some of our best ideas have come from practices in other fields, such as accepted the challenge,” Attura said, “and we now have aerospace or automotive, among many others.” a machine that can ‘stitch’ together metal sheets. PART 4: TEAMWORK AND ADAPTATION “When employees are in the “It’s really quite remarkable. This innovation has right role, have the right attitude and are open to ideas regardless of reduced our cycle time by two-thirds. We’ll soon be where they originate, then we can create teams made up of people with introducing the same technology at our manufacturing a wide variety of skills that are effective in adapting technologies and plant in Wichita.” methods to improve our products and processes.” John Zink Hamworthy Combustion, another KCTG The value of this approach has been proven time and time again, Koch company, has a similar story, this time involving new says. And, as the following examples show, some of the best ideas can employees with a different perspective. come from what seem like the least-likely places. “This company has been making process burners for HAVE YOU HEARD ABOUT…? almost 100 years,” says Casey Chambers, president of JZHC, “and we’ve tended to train people the way we’ve Examples of innovation by Koch companies and their employees abound. always trained them. That takes time, because we make Alessandro Attura is the president and CEO of Koch-Glitsch, a Koch 40 different types of burners. Chemical Technology Group company that makes mass transfer and mist “But some of our new hires, who had been part of our elimination products for refineries and chemical plants. intern program, challenged our thinking about that.

5 Innovations at INVISTA’s “They wondered why we made 40 different kinds of burners Camden, South Carolina, plant when just eight could meet the needs of the marketplace. enable it to efficiently produce custom-colored carpet fibers in “And then, after more detailed analysis, they realized that small batches. This is a first for just three designs could meet 80 percent of our market nylon 6,6 production and a huge opportunities. It’s a lot easier to support three designs than benefit for customers who want 40. Just as important, by concentrating on fewer designs, intricate, multi-colored designs. more of our manufacturing process can be automated.”

Chambers says that John Zink Hamworthy is currently installing new robotic welding systems in its Tulsa and BOTTOM-UP Luxembourg facilities. This will enable its employees to be more efficient and improve the quality of burner products. As Charles Koch has emphasized, great ideas can come from anywhere in an organization — including from employees who haven’t spent all “What we learned is that innovation doesn’t have to be about that much time with the company, such as Koch’s college interns. product development,” Chambers concluded. “It’s about finding a better way to do something and then having the Every year, Koch’s college interns in Wichita have a competition to conviction and fortitude to do it, even when it isn’t easy. see who can come up with the most innovative business idea. This That can happen in every part of an organization.” year’s winners were Lance Pettay, Garrison LeRock, Paige Miller and Christopher Eaves, who suggested the implementation of a Cloud TECHNO-LOGICAL Desktop Infrastructure.

Although there are plenty of innovations that have nothing to For most people, “cloud” computing is associated with computer do with technology, there’s no denying that developments in memory. Documents or files are kept in a shared (but secure) technology are making a big difference across Koch. environment beyond the walls of the business.

New technology has enabled GP to solve the perennial The interns suggested leveraging computing power that is cloud- problem of sheet breaks on a paper machine at its Port based rather than built into a laptop or desktop device. This would Hudson plant. (Those breaks are a serious issue because they allow the company to purchase less expensive computer hardware. lower productivity and increase waste, costing the company “This was a fabulous idea,” said John Pavetto, Koch’s chief technology millions of dollars.) officer. “We began looking into it immediately.”

GP used advanced, cloud-based software, created by a vendor, Evgeniy Shishkin is a former Koch intern who now works as a shift to analyze process history data from the plant. That analysis manager at Koch in Enid, Oklahoma. Three years ago, revealed a cyclical pattern that enabled GP to determine the he led a diverse team that suggested a number of innovations and root cause of the problem. Problem solved, millions saved — improvements at that plant. but the story doesn’t end there. The team’s ideas improved efficiency, increased production and A Koch subsidiary recently acquired EFT, the company that dramatically lowered ammonia emissions. created that software, so other Koch companies can benefit Two years ago, Jonathan Segovia was working as an accounting intern from that capability. at Koch in Wichita. He was hired as an employee a year later. Similarly, KAES used a new analytics platform to study various Today, Koch’s tax department is more efficient thanks to Jonathan’s failures of the air compressor equipment at its fertilizer efforts to find more effective ways of using a tax automation tool Koch production facilities. (Like GP, those unplanned events were purchased. Segovia is also working on ways to use the tool for better costing KAES millions.) communication and reporting. The analytics not only helped KAES predict when a failure might occur, but prompted the purchase of a specific type of TAKE THE STAIRS air compressor to help avoid the problem. “Innovation is never a smooth curve upwards,” Pittenger notes. “It Various other technologies are being used by Koch companies spikes and flattens in a stair step pattern. You never know when the to do a better job of tracking products and supplies, next spike is going to occur, but you want to do everything you can to lower communication costs, improve compliance audits, make it happen.” more efficiently share knowledge about ever-changing That often includes looking — or listening — in unexpected places. environmental regulations and reduce manufacturing costs. “In 16th century Holland,” notes Charles Koch, “there was a town hall Another technological change — the move from a centralized with a sign over the front door that said (translated from the Latin), data network to a decentralized cloud-based program — is ‘Listen even to the other side.’ transforming Koch companies by eliminating bottlenecks and increasing bandwidth. This gives employees more, better and “If we truly want to grow and innovate, we have to be open to faster access to information. different ideas. Only by challenging our current way of thinking will we learn to improve.”

6 Looking Back

Clockwise from left: Noteworthy Fred Koch’s innovative thermal cracking process transformed independent refining. The Evolution of Everything — How New Ideas Emerge by Matt Ridley KII now uses social media extensively, a This is a book tool that continues to about bottom-up evolve. vs. top-down, Molex released 641 evolution vs. new products in the design, good first half of this year. news vs. bad.

Ridley, an award-winning, best-selling author, believes the world is a much better place today than Innovation: a constant at Koch it was a century ago. Incomes are up, diseases are It was an innovation in the curriculum at refiners to avoid the hefty royalty fees being cured, life-spans are longer and the Massachusetts Institute of Technology charged by the Patent Club (made up of the technology has made daily life much that persuaded teenaged Fred Koch to switch major oil companies). easier for millions of people. colleges and enroll at MIT. Throughout the 1940s, ’50s and ’60s, Fred Who gets credit for these wonderful MIT was the first school in the nation constantly experimented with new ideas. improvements? As Ridley points out, to combine the disciplines of chemistry These ranged from building air conditioner great advances and breakthroughs have and engineering to create a chemical towers out of fiberglass to cattle breeding seldom come from ruling elites of any engineering department. experiments at his ranches. He even figured kind, whether in government, business, Another innovation was the assignment out a novel and effective way of testing the the media, academia or religion. of students to industrial sites where they deicers on the first Learjet. “Much of the human world is the result could carry out tests and studies that were Some of these innovations were successes, of human action but not of human significant to the operation of those plants. but most — including the fiberglass cooling design; it emerges from the interaction (This idea led to the first-ever School of towers — failed and were soon forgotten. of millions, not from the plans of a few.” Chemical Engineering Practice, renamed in Life-changing trends that have shaped honor of David H. Koch in 1991.) THE INNOVATION IMPERATIVE the world — including the Industrial One of Fred’s industrial assignments was at a Charles Koch credits much of Koch Industries’ Revolution, abolition of slavery and papermaking facility in Bangor, Maine. After remarkable success to its innovative business the Internet — were never planned, he ® analyzing its processes, Fred came up with philosophy, Market-Based Management . writes, but they happened anyway. the idea of reusing spent ash, considered a MBM® emphasizes the realities of dealing What will change next? Ridley waste product, as an additional fuel source. with creative destruction — the inevitable believes “that the 21st century will be This innovation became the subject of Fred’s process in which new products, methods and dominated by shocks of bad news,” 1922 senior thesis at MIT. He calculated that companies continually displace older ones. but that incremental improvement will his idea would not only lower fuel costs and make people’s lives better in almost “We stress the importance of creative increase productivity, but reduce the amount every way. destruction,” says Charles Koch, “which is of effluent flowing into the Penobscot River why we are embracing innovation incessantly by 11 tons per day. by replacing old products, services and Bad news is top-down, methods with those that are newer and better. AT IT AGAIN purposed stuff, imposed “Innovation has been essential for the growth Five years later, Fred came up with another on history. Good news is and success of Koch Industries over the years. significant innovation: a way of combining Given the pace of change, it will be even more accidental, unplanned, existing cracking technologies into a new and important in the future.” emergent stuff that much more efficient refining process. gradually evolves. His thermal cracking process increased the yield of gasoline, reduced downtime and – Matt Ridley maintenance, and allowed independent

7 Perspective Charles Koch Chairman and CEO — Koch Industries, Inc.

Something remarkable has happened McCloskey puts it this way: “Our riches did not come from piling during the last 20 years that should brick on brick, or bachelor’s degree on bachelor’s degree, or bank forever change the way we look at balance on bank balance, but from piling idea on idea.” our world. If we truly want greater well-being for the world, we need societies It’s not smart phones, terrorism to be more free and open so that more people can take part in the or even climate change — all of exchange and application of ideas. which have grabbed plenty of “Liberated people, it turns headlines. Quite the contrary. If we want greater well- out, are ingenious,” writes What I’m talking about has being for the whole world, McCloskey. “Slaves, serfs, barely made headlines at all. subordinated women, people During the past 20 years, at we need societies to be frozen in a hierarchy of lords least a billion people around the more free and open. or bureaucrats are not.” world have been lifted out of Sadly, we still have plenty abject poverty. Think about that of examples around the world where the free exchange of ideas for a moment. A billion of the poorest is denied or curtailed severely. People in those nations lack the lives on our planet have changed for opportunities to improve their lives, which in turn inhibits their the better during your lifetime. ability to improve the lives of others.

How did that happen? And why aren’t we making a point of talking As a result, all of humanity is worse off. about it more often? A BETTER WAY THE GREAT ENRICHMENT This is why we place so much importance on our MBM® Guiding One of the few people shining a spotlight on this remarkable Principles, which include emphases on shared knowledge, the change is economic historian Deirdre McCloskey. (If you don’t openness of a challenge culture (Principle 6) and driving change have the time to read her most recent 700-page book, “Bourgeois constantly (Principle 7). It’s because all of us — employees, Equality,” then try the brief article she wrote for National Review or customers, stockholders and communities — are better off as her op-ed in .) a result.

What McCloskey calls the “Great Enrichment” started about 200 To be fair, Adam Smith was not entirely wrong in his thoughts years ago. Since then, she notes, average global incomes have about creating a better life. He hit the nail on the head when he increased ten-fold, dramatically raising the standard of living for said we need a society that allows everyone “to pursue his own even the most disadvantaged. Because of this, their lives are not interest his own way, upon the liberal plan of equality, liberty only healthier and happier, but much longer. and justice.”

“You might think the rich have become richer and the poor even I also like the way McCloskey describes the importance of this poorer,” she writes. “But by the standard of basic comfort in approach: “Give masses of ordinary people equality before the law essentials, the poorest people on the planet have gained the most.” and equality of social dignity, and leave them alone, and it turns McCloskey points to China, and several nations in Europe out they become extraordinarily creative and energetic.” where “even people who are relatively poor have adequate food, We should rejoice that a billion people have been lifted out of education, lodging and medical care — none of which their grinding poverty by the power of unfettered ideas. But think about ancestors had. Not remotely.” how many more people could see dramatic improvements in their lives if every nation embraced these ideals of freedom and opened WHO GETS CREDIT? opportunity for everyone. To what do we owe this dramatic improvement? Is it Socialism? As we have proven repeatedly at Koch Industries, the open Capitalism? Technology? Evolution? Maybe even luck? exchange of ideas is essential for a successful organization, as I agree with McCloskey that the answer is none of the above — well as for society as a whole. Be wary of any politician or would- especially not capitalism as most people define it. Capital becomes be leader who would deny you that freedom or insist that their powerful when it is transformed by ideas. cohorts, the ruling elite, are smarter and better — and therefore somehow more capable of running your life than you. It was not more horses and buggies that transformed peoples’ lives, it was when they were replaced — through better ideas — by bit.ly/2cE6VOw trains, planes and automobiles. on.wsj.com/1OQub9m What is changing our world for the better so dramatically is the accumulation of ideas.

8