Reflections on Mondragon

Producing everything from computer chips and bicycles to elevators and auto parts, the Mondragón Cooperatives’ businesses produce a wide range of products and services. Their continual search for new products reflects their flexibility in dealing with changing times. Their commitment to innovation and job creation is a stated goal of the corporation. For entrepreneurs, Mondragón includes an incubation center where they help develop and fund new projects. A promising idea can result in help to develop a business plan, funding to produce a model, and support right up to the finished product.

The average CEO of an MCC company receives six times the salary of the lowest paid worker, a far cry from US corporate CEO salaries, which might exceed 300 or 400 times the lowest salary. When a company CEO addressed our group, one participant asked why he stayed working for the Mondragón business when he could earn at least 20 times that amount in a for-profit business. That was an easy question for him to answer. It was about the community of people, the camaraderie, and the values. Why would anyone want to trade that for mere money?

To become a worker-owner in Mondragón, one must fulfill a job needed and be on a probationary period for eighteen months. If all is copacetic at the end of that term, he or she can become a worker member. Their initial investment is 15,000 euros and, since very few people would have that cash ready to invest, Laboral Kutxa offers a ten-year loan at 1% interest. Payments are deducted from monthly salaries until paid off. The democratic process means one worker-owner equals one vote. There are no stocks to sell or trade.

But Mondragón is not just about business. It is also about a system of values that allows cooperation to thrive and evolve. A few people in our seminars have asked what managers would do with a worker who was inattentive or goofing off on the job. Given that the worker is also an owner, could he or she be fired? “We don’t believe in confrontation,” our instructor said. “We would initiate a dialogue in order to find out what was causing the problem.” The focus at MCC is not punishment for bad or inattentive work but interest in the individual having the problem. Their approach in caring for the individual as well as the business is what makes Mondragón exemplary in people relations.

Many people who live in the town of Mondragón are not worker members in the Mondragón Cooperatives. Some work in other cooperatives and some work in private enterprises. With a population of about 23,000 inhabitants, the town of Mondragón is solidly middle class. There are neither mansions in the hills nor poverty in the streets. Most Americans who have taken our seminar notice early in the week that there are no homeless people and no poverty. But, often they do not notice the other part of that equation. There is also no display of great wealth. The concept of “enough” is alive and well in the Basque Country. Everyone is not at the same level of income, but no one seems ostentatiously wealthy. I have described it as gradations of middle class, a society that eliminates the extremes at either end of the economic spectrum.

Values
The Basque Department of Peace exhibits the qualities that underlie a community built on superior human relations. Under the direction of peace educator and negotiator, Jonan Fernandez, the five-year plan that was developed through citizen input and international peace and human rights organizations demonstrates that human rights must always have a greater value than ideas.

The department’s five-year plan outlines the type of education that is necessary for achieving its goals. It begins by placing human rights above ideas and acknowledging our limitations, accepting the idea that no one person or ideology has the whole truth. It includes education in ethical conscience, the core of ethical awareness, and embracing ethical responsibility in all circumstances. The concept of human dignity — a concept lacking in too many cultures — comes before any ethnic, political, cultural, or religious creed. The core of this education is to promote an empathic civil society. It is both an ideal and a goal. It forms the basis of civil society and the core components of co-existence in a diverse and democratic society. It constitutes a foundation for peace and peaceful relationships and is a necessary skill in dealing successfully with societies that have different values.

The Mondragón Cooperatives Corporation has taken many of our groups to Baketik, a peace center located in the hills above Mondragón on the property of a 500-year-old Franciscan monastery. At Baketik, instructors focus on the ethical management of conflict and the ethical basis for a personal stance on conflicts. This type of training provides another way to understand the ethics of Mondragón and of cooperative culture.

The ethical foundation of Mondragón has impressed me deeply over the years. Cooperatives do not just arise under any conditions or in any location. Like well-prepared soil for planting, they need a nurturing environment. At Mondragón, the instructors seem to take that environment for granted. It had been there so long that they didn’t think to mention it when talking about the cooperatives. For me, the support structure and values that are part of the cooperative culture were of the greatest importance. They are the bedrock that makes everything possible at Mondragón. Since the Basque region has the largest number of cooperatives in the world, something had to be different there.

The cooperatives in the US all seem to share the same values and culture as those in Mondragón, but they operate mostly in isolation. There isn’t a network like the Mondragón Cooperatives Corporation or a bank that exists as a support for their inception and success. That said, the cooperative movement is growing in the US and part of that is due to the education people have received at the Mondragón Cooperatives.

Senator Bernie Sanders has talked about the value and timeliness of worker-owned cooperatives in his book, Our Revolution. He cites Mondragón as well as worker-owned cooperatives in Vermont and Mandela Marketplace in Oakland, CA. A Mandela representative participated in the 2010 Praxis Mondragón seminar, and her work is profiled in this report.

In the next Congressional session (2017), Sanders will introduce “a bill to create a US Employee Ownership Bank to provide low-interest loans, grants, and technical assistance to help workers purchase businesses through a majority-owned employee stock ownership plan or a worker-owned cooperative.”

Mondragón Cooperatives Corporation

TEN CORE PRINCIPLES
1. Open Admission
2. Democratic Organization
3. Sovereignty of Labor
4. Instrumental and Subordinate Nature of Capital
5. Participatory Management
6. Payment Solidarity
7. Inter-Cooperation
8. Social Transformation
9. Universality
10. Education

The timing is right for an alternative to job loss, low wages, part-time dead-end jobs, and the afflictions that outsourcing and automation have brought to American workers. Worker-ownership is the key to work with dignity, work with respect, and work with a future.

It seems that Mondragón has taken the very best ideas from both capitalism and socialism and created a hybrid that supports people, as well as their ideas, health, education, personal development, and society. Whatever one calls it, it works. And, it works better for more people than any other economic system today.

The Mondragón Cooperatives are a beacon to those looking for an alternative to cutthroat capitalism and state-owned businesses. They have nurtured a hybrid economic path that values both cooperation and entrepreneurship and is a compassionate relational model that values people over profit.

GEORGIA KELLY is the Founder and Executive Director of Praxis Peace Institute. She creates educational programs for Praxis and has developed study tours in Spain, Cuba, Italy, and Croatia. She also leads workshops in communication and conflict resolution. Georgia is a strong advocate for cooperatives and is instrumental in furthering the education of this economic model. She co-authored and edited “Uncivil Liberties: Deconstructing Libertarianism,” a critique of laissez-faire capitalism, and writes a blog on current events for the Huffington Post. She has chaired and been active in many issue-based political organizations and educational forums.

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Mondragon has grown to become the seventh-largest business group in Spain, with annual sales of 14 billion Euros and over 100,000 workers, and was highly resilient during the 2008 financial crisis. It comprises over 260 affiliated enterprises, including 120 core cooperatives, and has affiliates not just in Europe but around the globe.

The worker-owned cooperative is the core Mondragon social institution and the most ingenious reinvention of what it is to be human. In the cooperative, the workers themselves own the enterprise. There is no outside owner, unlike the capitalist corporation or the communist state-owned collective. Each worker-owner has one vote, and decisions are made by democratic vote of all owners. Structurally, it is like a sole-proprietorship, except that there are many proprietors, the workers. Nobody gets a wage; instead each is paid a monthly advance on his or her share of the year’s projected profit.

The worker cooperative is a fundamental inversion of the corporate model we take for granted in the capitalist world. In a conventional company, the owners of capital have ultimate authority, and the laborers are subservient. In a worker-owned cooperative, labor has ultimate authority, and capital is subservient, a principle known as Sovereignty of Labor. What it means in practice is that the workers, being the owners, run the enterprise for their own benefit, not for the benefit of a separate class of people who own it but do not do the work. No outside owner can shut down a factory, fire the workers, and move production somewhere else. No outside owner can mandate overtime, reduced pay or hazardous working conditions. The objective is not to make as much profit as possible for a few, but to make a good living for all. And in fact the worker-owners make, on average, ten percent more than their counterparts in neighboring non-cooperative businesses.

Sovereignty of labor has several implications:

• Democratic control: one worker, one share, one vote.
• Distribution of profits only to workers, the cooperative or the local community, not to outside investors.
• Egalitarian income spread. On average, the highest-paid worker in a Mondragon enterprise makes four to five times as much as the lowest. The maximum is nine times as much. (Contrast this to many big corporations, whose ratio may be as much as several hundred to one.)
• Participation in decision making. Each cooperative elects its own management team and has an annual meeting at which the worker-owners make strategic decisions about the enterprise. And there is a general council consisting of representatives from all the member cooperatives that makes decisions about the corporation as a whole.

Three things were of crucial importance from the very start: school, credit union and factory. In 1943, well before the first manufacturing enterprise, Father Arizmendiarrieta started a trade school, so students would have necessary skills to make a living and to form and run a cooperative. He also started a credit union, so people could pool their savings to provide start-up capital. Only when these were in place did the first manufacturing operation begin. A factory alone would lack ongoing sources of credit and new innovative skills.

In addition, the Mondragon cooperatives correct a fatal flaw that has historically led to the demise of worker-owned enterprises. In the Mondragon co-ops, a retiring worker’s share cannot be sold to just anyone, not even another co-op member, but only to a new incoming worker or back to the co-op. This prevents external stock buyers, speculative capitalists, from taking over successful co-ops. Many an ESOP (Employee Stock Ownership Plan) enterprise has collapsed because shares were sold to non-employees who, after acquiring enough of them, terminated or radically changed the business. In the Mondragon cooperatives, capital and ownership of the business stays with the workers.

Sovereignty of labor is only one of the ten core principles of the enterprise. The complete list includes such things as a ban on discrimination for religious, political, ethnic or sexual reasons; democratic and participatory management; cooperation among member co-ops and with other cooperative movements world-wide; and a commitment to social transformation and education. It is a striking vision, and a welcome alternative to the dog-eat-dog competition that is rampant both within and between conventional enterprises.

Certainly the worker-owners think so. Even if offered more pay somewhere else, most would not leave. They like the job security and the fact that they have a vote. The cooperative meets fundamental human needs: not just the needs for sustenance and social contact, but for self-determination as well.

The cooperative model is promising for a sustainable future, because it is not driven to grow in the same way as the capitalist model and because it allows its worker-owners benefits other than increased material consumption.

Democratically-controlled firms do not have the same drive for growth as capitalist firms. Capitalist firms aim at maximizing total profit, while cooperative firms aim at maximizing profit per worker. If a capitalist firm grows, doubles its workforce and doubles its profit, the owners get richer. If a cooperative firm grows, doubles its workforce and doubles its profit, each worker-owner gets the same amount of money. There is no internal motivation to grow.⁽²⁾

There are external motivations to grow, of course. Growth can provide economies of scale, driving costs down. Growth can provide more share of the market, so the firm is more assured of continued operation. The Mondragon cooperatives are enterprises in a market economy, subject to the same constraints and imperatives of competition that capitalist enterprises are. But there is an important difference. When innovation brings about a productivity gain, worker-owners are free, if they wish, to opt for more leisure or investment in other market opportunities instead of higher pay, which would lead to increased consumption. Reduced consumption makes for reduced environmental impact.

In a world of vast but limited resources, an expanding population and more and more pollution, it is crucial to find ways of satisfying human needs without degrading the environment. Over-consumption – buying stuff we don’t really need – is a threat to the environment because it uses up more resources and produces more waste than necessary. A capitalist owner would be unlikely to allow workers to work less because they have become more productive. There’s no profit in that. But worker-owners, once they reach a certain level of income, might well opt for such a solution, preferring time with family and friends to the means to buy more goods.⁽³⁾

The success of the Mondragon co-ops is undeniable, so it is natural to want to replicate it elsewhere. One wonders how much that success is due to factors unique to the Basque country where it started. Perhaps there is something special about the Basque culture. Mondragon is the best known but not the only cooperative enterprise there. The area is rife with producer co-ops (where farm owners, but not their workers, are members), marketing co-ops, consumer co-ops, transport co-ops, housing co-ops and cooperative schools.⁽⁴⁾ The Basque people have a strong sense of ethnic, linguistic and cultural identity, and they were an oppressed minority under Franco, leading to an even stronger internal cohesion. They have a tradition of equitable land distribution. The first business produced a much-needed product at a good price; and the area is strategically located, with easy access to large ports like Bilbao, and short distances to major export markets.⁽⁵⁾

Which of these factors are most important for a successful worker’s co-op? Beyond the ability to make and sell a product, which is essential to any economic enterprise, my guess is that in-group cooperation in the face of external hostility had a lot to do with it in the Basque country.

Cooperation, of course, is an inherent human ability and activity. We are most cooperative in the face of an external threat, but we have the ability, in common with our bonobo cousins, to cooperate among groups as well. If we want to replicate Mondragon’s success, we need to foster a sense of empathy, solidarity and compassion among all humans, a sense that we are all members of one tribe, one family, the human family.

Can we do that? Can we emulate the vision and drive of Father Arizmendiarrieta, without whom the Mondragon co-ops would not have begun? A journalist once remarked that Arizmendiarrieta had created a progressive economic movement anchored in an educational institution. He replied “No, it is just the reverse. We are creating an educational movement for social change, but with anchors in economic institutions.”⁽⁶⁾ It is the whole of humanity that matters most. Perhaps we can form a more cooperative society if we take as our common enemy ignorance, rather than some other group of humans.

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Notes

(1) Sarte, “Existentialism is a Humanism.”

(2) Schweickart, “Is Sustainable Capitalism Possible?” p. 112.

(3) Idem., p. 113.

(4) Davidson, New Paths to Socialism, p. 26.

(5) Long, “The Mondragon Co-operative Federation.”

(6) Davidson, New Paths to Socialism, p. 25.

References

Davidson, Carl. New Paths to Socialism: Essays on the Mondragon Cooperatives. Pittsburgh, PA: Changemaker Publications, 2011.

Long, Mike. “The Mondragon Co-operative Federation: A Model for our Time?” On-line publication, URL = http://www.cooperativeindividualism.org/long_mondragon.html as of 18 September, 2011.

Mondragon Corporation. Corporate website. On-line publication, URL = http://www.mcc.es/ENG.aspx as of 17 September 2011.

Sartre, Jean-Paul. “Existentialism is a Humanism.” On-line publication, URL = http://www.marxists.org/reference/archive/sartre/works/exist/sartre.htm as of 17 September 2011.

Schweickart, David. “Is Sustainable Capitalism Possible?” In Davidson, New Paths to Socialism, pp. 103 – 126.

Wikipedia. “Mondragon Corporation.” On-line publication, URL = http://en.wikipedia.org/wiki/Mondragon_Corporation as of 17 September 2011.

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