The Battle for the Cato Institute

Charles Koch and Ed Crane were once allies in the libertarian movement. Now the former friends are facing off in a fight for control of Cato, the think tank they founded together 35 years ago. By Luke Mullins

Billionaire Charles Koch (left) has emerged as a champion of the Tea Party, while Ed Crane has remained a strict libertarian. Illustration by Steve Brodner.

Ed Crane lumbered into Capitol Hill’s Christ Church on a rainy morning in October 2011. He walked the creaky floors in the 19th-century nave and found a seat in the paint-chipped pews. Mourners crowded the interior as the choir began singing.

William Niskanen’s death, at age 78, hadn’t come as a shock. His health had been in decline for two years before his stroke four days earlier. But to Crane, Niskanen’s passing meant more than the loss of a friend and colleague.

“Crane was devastated,” said one observer. “He looked as though it was his own family member who had died.”

For 26 years, Crane and Niskanen had shared a secret: They weren’t just top executives at the Cato Institute, the nation’s most prestigious libertarian think tank. Along with two others, they had quietly signed a document in 1985 providing each with shares of Cato’s stock—giving them collectively 50-percent control of the think tank. Few outside Cato’s inner circle knew about the unusual arrangement.

For many years, the shares had seemed unimportant. But as Crane’s relationship with Cato’s other shareholders—billionaire brothers Charles and David Koch—turned combative, the stock became crucial. And because the document didn’t specify what would happen to a shareholder’s stock upon his death, Crane worried that Niskanen’s passing would set off a knife fight for control of Cato.

Since its founding in 1977, Cato has evolved from a band of roguish scholars to a first-tier Washington think tank that cuts across party lines to further its libertarian agenda. Its scholarship became the intellectual spine of President George W. Bush’s unsuccessful effort to privatize Social Security. And its work has helped make once-heretical libertarian positions such as legalizing gay marriage and decriminalizing marijuana more credible.

“Cato has made the case that libertarians aren’t just a bunch of pot-smoking weirdos,” says Martin Wooster, an expert on foundations and a senior fellow at the Capital Research Center. “It has helped make libertarianism a respectable public-policy position.”

As the funeral ended, the crowd filed into an adjacent hall for refreshments. Old friends and coworkers greeted one another with smiles. But Crane was in no mood to catch up.

Crane, whom critics describe as a swaggering autocrat, sees Cato’s success as a validation of his 35-year reign. Show me, he says, who else could have built this place—from scratch—into an institution so highly regarded in Washington and around the world.

He wasn’t about to let Charles Koch rob him of his life’s work. No way.

Just before midnight on February 29, Crane was awakened by a phone call at his Northern Virginia home. It was Politico reporter Mike Allen.

Allen told Crane that Charles and David Koch had filed a petition in a Kansas court staking claim to Niskanen’s Cato shares. If successful, the maneuver would allow the Koch brothers to accumulate two-thirds of Cato’s outstanding stock and take over the think tank.

The prospect of Koch control sent chills through Cato headquarters. Although Charles Koch, 76, had once been a die-hard libertarian, he has emerged as a major financial champion of Republican causes. He and his brother plan to direct more than $200 million to conservative groups before Election Day, according to Politico.

Cato staffers were terrified that Koch would turn their beloved think tank into a factory for GOP talking points. “We fear that a Koch takeover would change our mission from one of winning hearts and minds for the libertarian cause over the long run to one of winning elections and legislative battles for the conservative movement in the short run,” says Jerry Taylor, a Cato senior fellow.

Crane issued a statement shortly after the lawsuit was filed: “We view Mr. Koch’s actions as an attempt at a hostile takeover and intend to fight it vehemently.”

The outbreak of civil war at Cato stunned Washington. Libertarian bloggers expressed outrage; Cato staffers pledged to resign.

The Kochs’ motivations were a mystery even to libertarian insiders. After all, Charles Koch himself had recruited Crane to launch Cato in the late 1970s. Through $30 million in donations, the Kochs had bankrolled Cato’s ascent. Along the way, Charles Koch and Crane had become friends. And though Koch had become a conservative activist, Cato’s support for lower taxes and less regulation aligned neatly with his business interests.

Behind the scenes, though, the relationship between Crane and Koch had been souring for years. Personal acrimony—over Koch’s management philosophy and Crane’s handling of a conference in Moscow—led in the early 1990s to the breakup of their friendship. After Crane criticized Koch in a 2010 New Yorker article, it was all-out war.

Ed Crane was first drawn to libertarian ideals as a boy growing up in Los Angeles. The son of a doctor, he began reading the complete works of Ayn Rand in high school. Arriving at the University of California, Berkeley, in 1963, he subscribed to underground libertarian newsletters. The more Crane learned about libertarianism, the more sense it made.

Libertarians believe you should be able to do whatever you want—bundle mortgage-backed securities, sleep with a prostitute—so long as you don’t deprive others of those same rights. Like conservatives, libertarians tend to back gun rights and fewer regulations on businesses. But their non-interventionist foreign policy and support for civil liberties can align them with liberals.

“Libertarianism is a skepticism of government in the bedroom, in the boardroom, and abroad,” says Brink Lindsey, a former Cato scholar.

The philosophy resonated for Crane. During his junior year at Berkeley, he launched a campaign for the student senate on a platform of abolishing it. He lost.

Although he had been active in California libertarian politics, Crane didn’t appreciate the movement’s diversity until he attended the Libertarian Party’s first national convention in 1972. At the Radisson Hotel in Denver, Crane mingled with anarchists dressed all in black and Ayn Rand devotees carrying long cigarette holders. “It was like a Star Wars bar scene,” he says. Wearing a jacket and tie, Crane stood out. Three years later, he gave up a career in finance and moved to Washington to manage the 1976 presidential campaign of Libertarian candidate Roger MacBride.

By then, Charles Koch had spent a decade at the helm of a booming oil conglomerate. The second of four boys from a rowdy Wichita household, Koch acquired a strict work ethic from his father, Fred Koch, who had founded Koch Industries in 1940. “By the time I was eight, [my father] made sure work occupied most of my spare time,” Koch once wrote.