Mondragon Miracle, Part 1 of 3:
Building the Road We Travel
SolidarityEconomy.net via DailyKOS
1941, Office of the Archbishop of Spain:
"They just released you?" Archbishop Balbino Oliver eyed the priest standing before his desk with suspicion. Something about the young man unsettled him.
"I believe it was in error. They did not realize I had written so much against Franco. When God spared my life, I enrolled in the seminary."
He possessed humility. Good. Yet something about the eyes... "Even under the care of the church, Franco may not let you go so easily."
"Yes, it is best if I left Spain. I could continue my writing in Belgium. I think I can..."
"God granted you a precious gift, my son." The Bishop leaned back, considering. His left eye. That was it. "It would be unwise to waste the gift with further agitation of forces beyond your control." Yes, his left eye stared back slightly wider, giving him a permanently quizzical expression. Father Bertolli had mentioned him losing his eye in an accident.
"But the work I've been doing..."
"Is against Church official policy." The Archbishop leaned forward to study the documents the priest had presented him. "You are Basque, no?"
"Yes, but in Belgium..."
"Father Tillous requested an assistant in Mondragon, only 50 miles from where you grew up. Franco is unlikely to bother you, there."
"Out there, he is unlikely to need to." The young man bowed his head curtly, murmuring the obligatory goodbye.
The bishop's gaze followed his receding figure. Even with his back turned, the young man disturbed him. Perhaps something other than his eye then...
Balbino had no way to know, he had just set Don Jose on course to change the world.
History of Mondragon
Don Jose (1941-1955)
*1943: One coop, 24 workers/owners
"Knowledge must be socialized so that power can be democratized."
Basque is nestled high in the Pyrenees Mountains of Northern Spain. The native population has lived there with its unique culture for all of recorded history. During most of that time, the tiny nation has been occupied.
The Basque Church broke with the Catholic Church during the Spanish Civil War (1936-39), openly opposing Franco in support of the democratically elected, socialist government. The Republicans promised Basque its independence under an amicable split from Spain. After centuries of outside rule, they eagerly threw their support behind the Republicans. Franco struggled to defeat the motivated Basques in their remote mountain location. After he won, he singled them out for deprivation and repression. He banned the Basque language and culture. Their leadership was forced to flee or face the firing squad.
The activist Jesuit priest, Don Jose Maria Arizmendiarrieta (Don Jose), had had his own brush with Franco. After his writings landed him in jail, a clerical error released him, saving him from certain death. He immediately joined the priesthood and returned to Basque, their prodigal son.
He arrived in Mondragon to discover his homeland desperate for social justice and economic security. Centuries of oppression robbed them of any positive vision for their future. Unemployment was high and worker's unions banned. His countrymen were poor, undereducated and underfed.
Don Jose taught in the apprentice school of Union Carrajera, the main employer of the town. The school only admitted the children of their employees plus 10-12 other students per year--15% of the youth in Mondragon. The other 85% had nothing. Don Jose offered to raise funds in order to expand enrollment. The company firmly refused.
"The socialization of education, the access to it by everyone in the community without discrimination, the granting of opportunities to all persons are fundamental postulates of all social movements of our times. The proclamation of human rights that are not matched by economic and educational guarantees are ephemeral concessions just for show and are destined to produce poor results...These people must be concerned with education, because only slavery Will be found if they follow the path of illiteracy and ignorance instead."
Don Jose saw his responsibilities to the area not just to uplift the spiritual realm of the people, but to also improve their earthly lot by helping their social and community development--a view that made him a pariah with Church hierarchy. To cure economic poverty, he knew he needed to combat "poverty of intellect" or control of knowledge. The winners of revolutions always commandeered education. These privileged few, eventually reenslaving the masses. Control of knowledge kept the powerful in power and the poor in poverty: The engineer's son would always become an engineer, while the son of a laborer always became a laborer. Don Jose wanted to avoid this pitfall in Mondragon. He felt only universal education could help workers avoid becoming a tool of the larger machine and safeguard Mondragon from future tyranny.
"Knowledge is power and in order to democratize power, one must socialize knowledge beforehand. We accomplish nothing, with the proclamation of rights, if afterwards the people whose rights we have proclaimed are incapable of administering those rights or if, to be able to act, these people have no recourse but to count on only a few indispensible members in the group."
Instead of placing a new school under the control of the Catholic Church, Don Jose traveled around the town presenting a proposal for a school run by democratic control. He was a remarkably bad lecturer--people fell asleep during his sermons. Instead, he met them on the streets, in bars and restaurants. His strength lay in his convictions and his dogged persistence. He placed ballot boxes on street corners. Six hundred respondents pledged cash or other support for his proposed school.
In 1943, he opened a community owned and run school. Not only did he provide training in technical skills, but he also developed a base of young people capable of freethinking. Don Jose made community service part of the curriculum. He wove ethics and social consciousness into his lessons, questioning the conventional labor and social practices. After hours, he educated the adults. Upon graduation, students had 11 years experiencing cooperative ideals. This created a base of workers able to engage in the democratic control of the work place and capable of combating worker subordination. They became the foundation of his cooperative movement.
Five of the graduates from the school's engineering program went to work in the main conventional business of the area, Union Cerrajera, only to discover management wanted no part of these new ideas. By 1955, the five graduates left Union Cerrajera. Under the tutelage of Don Jose, they traveled the countryside collecting donations from their impoverished neighbors.
They had no business plan. In fact, they did not even know what their new business would produce. Yet, on the strength of people's trust in Don Jose alone, they were able to raise $361,604 ($2 million in 1990 US dollars) and buy a simple paraffin stove manufacturing business. They named their new enterprise Ulgor, an acronym based on the initials of their last names. When butane arrived in Spain, they were first to convert and led the butane wave in Spain, setting the standard for Mondragon to be a trendsetter in Spain for the rest of its history.
Don Jose started with one co-op of 12 workers under the fascist dictator, Franco. Instead of getting lost in the areas significant disadvantages, he concentrated on Mondragon's few inherent strengths. They pocessed a tradition of co-operative farming practices and relatively equitable land distribution. A long history of state oppression forced them to become a self-reliant and cohesive people. They had natural resources, including iron ore, coal for steel, and metalwork skills.
Don Jose took advantage of programs the Spanish government already had in place. The government gave coops a great deal of support in the early days, providing 12.5%-20% start-up capital at a low fixed interest rate. Coops paid no corporate tax for the first ten years and half the standard rate after that. Spain's protectionist import policy after the war further protected the budding cooperatives. They had room to grow and develop without serious competition from powerful and sophisticated foreign companies. They also took advantage of the destruction form the Civil War and WWII, producing goods for growing disposable incomes in the years after the wars.
After the initial seed money gathered from the town as donations, Mondragon's workers self-capitalized their business, making them worker/owners. In 1959, they created their own bank, Caja Laboral Popular.
In 1969 Spain declared coop members self-employed and thus ineligible for state health care and unemployment benefits. Mondragon created its own system of health care, Lagun Aro. They provided health care service at a lower rate than the state was able to provide. They eventually expanded to provide pensions and life insurance.
Programmed Development (1970-84)
*1974: 45 coops with 17,000 members. Strike at Ulgor.
*1975: Francisco Franco dies.
*1982: Basque finally wins local autonomy. Mondragon has 20,000 worker/owners, 85 industrial coops, 6 agricultural coops, 2 service coops, 43 cooperative schools, 14 housing coops, 40 stores for its consumer coop, a bank with 120 branches, a research institute, a polytech college, a social security and health care coop.
*1980-83: Spanish Recession
Mondragon expanded at break-neck speed through the 70's. As they grew, they reorganized into regional subgroups that strategized together. The "Contract of Association" linked the new coops together into a network. A strict policy prohibited direct competition among them. They bought and sold to each other whenever possible. True to its socially conscious roots, the fledgling organization made a commitment to refrain from making weapons, useless luxury goods, or pollute the environment.
In the 1980's, a severe recession hit Spain. Unemployment hovered around 20%. To weather the storm, Mondragon spent all accumulated profits on wages. They pulled in their investments, investing more cautiously, and attempting to diversify their business model. Wages dropped by 15% throughout the cooperative. Hours were cut without effecting pay, with the guarantee that unworked hours would be made up later in the year.
When these measures failed, the management and worker/owners met for three days. Finally, the workers agreed to hold a lottery, and 20% of the workforce was laid off with 80% pay. Some of these workers transferred to other coops within Mondragon. Some were retrained or retired early. At the end of the year, workers still out of work came back at full pay and another set was laid off.
During the decade long crisis, Basque lost 150,000 jobs but Mondragon created 4,200 jobs (an increase of 36%). During that time, only 104 (0.6%) ended up briefly unemployed with 80% of their salary.
"Teaching should be ongoing in order to be effective. Tools and machines need to be continuously renewed but above all there has to be a renewal in the mentality of human beings because they are destined to be the masters or these tools."
While 80% of traditional start up businesses fail, Mondragon's success rate for new ventures has been 80-90% from the beginning. One of the reasons is its internal capital fund (see Organization in Part II). But Saiolan also deserves some of the credit. In 1981, Mondragon founded an incubator for new products offering budding entrepreneurs coaching, technical resources, funding and help with business plans. In all, 285 entrepreneurs have been helped to create their own company under the Mondragon system.
Mondragon also created an R&D center (Ikerlan) to incubate and refine new ideas before implementing them. The R&D center works closely with the business school. Ikerlan research is commonly given as coursework to one of the classes, creating student incentive by letting students know their homework will create new enterprises. Ikerlan played a key role in keeping Mondragon on Spain's cutting edge and creating well-researched successful ventures. Mondragon manufactured Spain's first computer chips. They lead Spain's industry in wind, solar, and hydrogen power as well as communications, health industry, and food.
This is not to say it has always been all harps and roses at Mondragon. In 1974, their oldest and biggest cooperative, Ulgor, went on strike.
Ulgor bought a refrigeration manufacturing business, adding it to their stove manufacturing and increasing workers to 3,500. The new workers were given little ideological training in cooperativism. In Mondragon, wages were set by a formula taking into account the difficulty of the job, personal performance, experience level, and interpersonal skills. The management at the failing Fagor refrigeration plant exceeded the salaries of the successful Ulgor plant, while labor at Ulgor made more than Fagor's workers.
Ulgor grew large so fast, communication between management and labor was compromised. Management unilaterally convened a committee to reassess the difficulty of various jobs. They filled the committee from their own ranks and, not surprisingly, the committee adjusted engineering and management wages up while dropping relations and assembly jobs down. Wages dropped for 22% of the jobs and supervisors were given power to grant merit points that increased some worker's wages. This was widely seen as an attempt to value mental work over physical--something Don Jose was against.
Workers argued monotony should be part of the formula for wages. They wanted some control over supervisors to counter the merit credit system. When the Governing Council refused to hear the request from workers, 700 of them left the factory. The strike only lasted one day, but 24 leaders of the strike, two thirds of them women, were "fired".
Only the General Assembly could actually fire a worker. Since the General Assembly would not meet for four months, the workers were provisionally "fired". Management had four months to give "informational chats" before the General Assembly met. The bars became an ideological battlefield in those months, creating a deep rift in Mondragon society that is still felt today.
When the General Assembly met, it upheld the firings. The fired workers were not readmitted to their jobs until 1978, when the workers launched a general campaign on their behalf.
Adaptation to Market Forces (1985-90)
*1986: Spain opens its economy to Europe.
*1987: Mondragon does $1.6 billion in business, 19% for export out of Spain
*1989: Spain opens its economy to the World. Basque adopts Mondragon-style business as the official economic policy of the fledgling nation.
*1990: Mondragon has 21,241 members, more than 100 coops, $2.6 billion in assets, schools with 6,500 students
Globalization hit Mondragon hard. We have all witnessed local companies collapse when faced by giants like Wal-mart. In response to this threat, Mondragon centralized their leadership, to make it as nimble as other multi-nationals. They expanded their reach--first across Spain and then around the globe.
To avoid import tariffs, Mondragon purchased subsidiaries in China, Mexico and Brazil creating an influx of nonmember, international workers. They took advantage of NAFTA to import their home appliances into the US. To date, the coop has not offered full membership to all of its workers. (Some of these countries have laws prohibiting cooperative organizations.)
In recent years, Mondragon has restricted membership. They argue that members are guaranteed a lifetime job, so over expansion of membership in uncertain times puts current members at too much financial risk. Additionally, to insure new members are suited to cooperative work and responsibilities they have initiated a one year probationary period. Many workers do not have the maturity or far-sighted vision to work in the cooperative setting.
*1996: Mondragon is the 15th largest business in Spain with 86 production coops, 44 educational institutions, 7 agricultural coops, 15 building coops, 66,000 members
*1997: Mondragon does $5 billion in sales, has financial assets of $7.5 billion. It is the leading producer of domestic appliances and machine tools in Spain, third largest supplier of automotive components in Europe. Mondragon University is founded.
*1999: External nonvoting capital is allowed into MCC equity and now comprises 13% of equity.
*2003: Mondragon has 75,000 members, 160 coops (135 industrial, 6 financial, 14 distribution). Spain's seventh largest business. Mondragon teaches multi-lingual classes and has 4,000 students. Their college has four university level programs: engineering, business, humanities-enterprise, and teaching. Their consumer coop, Eroski, is Spain's third largest grocer.
*2007: Mondragon has 100,000 worker/owners and another 30,000 employees, $24 billion in generated revenues. One quarter of the products scheduled to be made by the company in 2012 are not yet in production. The Bank has 389 branches over all of Spain. Their educational system has 45,000 students. Eroski successfully keeps Wal-mart at bay by out competing them!
In 1991, Mondragon reorganized again into Mondragon Cooperative Corporation (MCC) with three major business arms: Financial, Industrial, and Retail/Distribution with divisions under each branch. Each division has its own bank but they are organized under the Central Inter-cooperative Fund (FCI) which is financed by 10% of profits of member coops.
"Such co-ops outstrip all types of capitalist firms in productivity not in spite of being democratic, but to the extent that they are."Levine and Tyson
Mondragon did well in the financial crisis of the 1980's because it was structured to share the wealth and the burden. This has allowed it to weather the most recent economic instability as well.
With its relaxed, welcoming workplace atmosphere, including childcare and European style coffee bars in the break room, you might think Mondragon would not be able to compete with multi-nationals in the age of globalization. You'd be wrong. It has equaled or out preformed conventionally owned rivals in both productivity and per capita profit since its inception. The Mondragon model is required reading for both Harvard business school and Stanford law students for that reason.
Mondragon has survived the onslaught of multinationals and the push for globalization, but at some cost. Many of the original social values of Mondragon have been displaced for the sake of market efficiency. They are more centralized and hierarchical. They hired non-member workers, and increased the pay differential between workers and management. This led to a gap in power and increased dissatisfaction for the workers. Just-in-time inventorying, work-movement monitors, and swing shifts were introduced. These sorts of changes left the workers feeling their responsibility and stress had increased, while self-determination declined.
Mondragon has been a local force in the Basque nation. The town of Mondragon, with its population of 23,000, is nestled in unspoiled countryside with smooth roads and no billboards. The area is solidly middle class without the extremes of mansions or shanties. The Basques enjoy a strong sense of community that is friendly and trusting.
Mondragon, however, is big enough to be an economic force, particularly in light of today's collapsing markets and they have yet to step into that role.
In 2009, the General Assembly voted to open membership to non-Basques within Spain. One of the many criticisms leveled at Mondragon is their use of non-member workers. Nine percent of employees are not members. Most work in Eroski, the largest supermarket chain in Spain and most are women.
Next time, I detail how Mondragon's unique organization created their success.
Mondragon Miracle Part II of III:
The Genius of Don Jose
It’s been a rather tough week for capitalists. With people waking up from the illusion of money and riots erupting in otherwise reserved England, I almost feel a little sorry for the advocates of Milton Friedman. Almost.
As you scrape together your last dollars to exchange for gold and throw another bucket of water on your burning London flat, have you considered abandoning this system? There is a choice, you know. We choose to have this system and all the pain that comes with it. Not offering opposition to a bad system is making a choice to continue with the dysfunction.
What’s that? You didn’t know you had choices? No one has explained to you the alternatives? Well, if you don’t feel obligated to ride this sinking ship to the bottom of the ocean, come along with us as we start talking solutions.
In Part I of this three part series, we discussed the history of a little known cooperative venture called Mondragon. This company went from a twelve-man paraffin stove manufacturing plant to a conglomerate that holds Wal-mart at bay in miniscule country of Basque, and employs 130,000 people. The cooperative has a remarkable 80% success rate in business ventures, far outstripping the typical success rate of 20% (less in this market). It has consistently helped the Basque people strengthen their communities with education, health care, housing and a robust social safety net. It creates jobs where none existed before, stabilizing their economy while nearby Spain and Portugal flounder.
How could this one company achieve such miraculous results? Well, it may actually be a divine intervention–through a Jesuit priest named Don Jose. In this segment, I delve deeper into Don Jose’s unique genius in devising the Mondragon system.
“If these ideas are true, what kind of organization does it suggest?”–Don Jose
Don Jose understood you could not have a viable community under the economic tyranny of a capitalist corporation. He worked to create a system that could survive inside the fascist, capitalism of the Franco regime, but would actually work to preserve and boost the Basque community.
He created a cooperative that gave ownership to all its members. Workers must “buy in” to the Mondragon cooperative system. At present, the cost is $11,000 (10% of the capital cost to create a job). This can be deducted from the worker’s first several years of wages. However, if the venture goes bankrupt, the worker is still responsible for the amount pledged, committing every worker to the success of the venture from day one. Of course, this also grants the business a no-collateral loan at a fixed low interest rate. This win/win situation is typical of Don Jose.
The buy-in garners the worker/owner one vote in all elections, 6% interest on the money held by the bank, access to all records in Mondragon, a lifetime job with a share of annual profit distributions, health care, pension, and a garden plot.
Workers make competitive wages. Additionally, an annual share of profits is deposited into the company credit union, Caja Laboral Popular, under the worker’s name. There, it earns 6% interest plus adjustments for inflation. The worker cannot withdraw from this account. The money is only available upon leaving the coop or retirement. Mondragon self-capitalizes its business ventures with these funds.
On retirement, the worker receives 75% of the accumulated funds in the account. The other 25% is kept for the collective reserve that made the job possible in the first place. In the end, workers contribute 32% of their earnings but receive 60% of their final salary, full health care and a vegetable plot upon retirement.
Unlike American corporations, one worker gets one vote (democracy) instead of investors getting more voting power for more financial investment (plutocracy). Voting rights can only be sold en mass by a 2/3 vote of the General Assembly of Mondragon. They can never be sold by individuals, preventing hostile takeover of the company by economic means.
Mondragon breaks with traditional coops in an important way. Workers do not vote directly for those with the greatest impact over their working lives—managers. All coops have a General Assembly, comprised of all worker/owners. This is the highest authority in the coop. They elect a Board of Directors and a President of the Board to four-year terms.
The Board of Directors appoints or hires managers. Managers are also worker/owners and serve for four-year terms. Once a manager is appointed, the board cannot direct managers within their own unit. The Board can only appoint or demote. This prevents micromanaging by uninvolved senior executives. It encourages the Board to hire skilled, rather than merely compliant, managers and then forces the Board out of the way, so managers can innovate. Brilliant.
When one coop conducted a job satisfaction survey and discovered significant dissatisfaction with two specific assembly lines, managers formed a committee of workers to suggest changes. And then management did something revolutionary—they actually listened to the workers’ advice.
They abandoned the conveyor belt, in favor of worktables. Workers sat around the table and set their own rhythm. Workers faced each other and exchanged information and ideas. They rotated tasks; when one worker was slow, or some one was absent, other workers picked up the slack. The workers began to manage their own labor, requiring less of the managers, and freeing management to look for ways to expand the business.
Mondragon shirked the traditional anarchist model for a worker owned cooperative as well: Not all people in the cooperative have the same status, pay or work. Instead, Mondragon coops have a layer of management not directly under worker control. However, management can only make six times what the lowest paid worker makes. If management wants more money, everyone has to benefit. Again, brilliant.
Mondragon wages are determined by a formula, taking into account the difficulty of the job, personal performance, experience level, and interpersonal skills. Work experience and intrapersonal skills are prized over simple efficiency.
A Social Council represents every worker division of 20-50 workers. This Council deals with any worker concerns about labor practices. It represents them as workers, like a labor union. The Social Council has direct access to any manager or employee all the way up to the Board and the CEO. At the same time, the Board tasks this Council with job descriptions, pay scales, fringe benefits, safety, etc.
An elected Governing Council watches over the Board of Directors and provides a worker voice at meetings. It represents the owner aspect of the members.
At the highest levels, a President and the General Council comprised of nine Vice Presidents—one for each division—run the conglomerate. The General Council is accountable to the Cooperative Congress, made up of representatives of each cooperative. The Congress exists as the highest authority in the Mondragon Conglomerate. The Standing Committee—elected from the previously elected leadership of the various groups and divisions—appoints the President and approves his choices for General Council. However, each coop is autonomous. They may leave Mondragon at any time by a vote of their own General Assembly.
“People in Birmingham blame the police for protecting big business in the center of town while leaving the small businesses on the periphery and in ethnic communities unprotected.”–News Hour on the BBC
“How can we do this in a way which works fully for those in the enterprise and those in the community rather than for one more than the other?”–Don Jose
Mondragon borrows its venture capital from the workers to self-capitalize their company. At the end of the year, the profits are divided with 45% going to the company reserves for investment and purchases in the common good (research , development, job creation, etc.), 45% distributed to the worker/owner’s capital accounts in proportion to their wages (retirement), and 10% going to social services run by Mondragon (education, housing, health care). By comparison, the average US corporation donates less than 2% to charity.
The bank funds programs necessary for worker well-being: A housing authority, healthcare until Spain had universal healthcare, education, pensions. It also loans money to workers for their personal needs. In this way, every act of business serves both the worker and the community. This simple association heals the for-profit and not-for-profit rift. Mind-blowingly brilliant. If only our nation had followed the teachings of Don Jose, instead of Milton Freidman, we would not be struggling with inadequate health care and bankrupting social security. In fact, there would never have been a housing bubble in the first place.
The bank, Caja Laboral Popular, has two divisions. The first, provided the usual services of a credit union. The Empresarial Division aids in creating new cooperatives and thus new jobs. Creating new jobs, in turn, increases the amount of profits and the amount of money in every worker’s capital fund as well as money to social services. Beginning to see the pattern? This branch contains a research division, library and documentation center, Ag/Food division, Industrial Products, Industrial Promotion and Intervention, Export, Marketing, Productions, Personnel, Admin-Financial, Legal, Auditing, Information and Control, Urban Planning, Industrial Building, and Housing. Even today, everything in Mondragon links back to the bank.
Caja provides a new coop 75% of the required start-up capital in a loan at below market rate, repayable over 10 years. Another 12.5% comes from the state and 12.5% is provided by the original worker/owners. If the coop has problems making payments, the bank halves the interest rate. If they still have trouble, the interest rate goes to 0% and the Bank donates capital to the business. In other words, the riskier the loan the lower the interest rate! Ventures wobble but they don’t fall down.
Most new cooperatives find ways out of their financial difficulties, even if they have to make a major change to their business plan or management. Most loans are repaid, eventually. The Bank knows a successful coop contributes to the Bank’s capital, and its ability to create more coops and more jobs, leading to Mondragon’s phenomenal success. They are willing to make a small sacrifice to eventually achieve long term success. Again, a much better model than the current Western system, in which each round of bank foreclosures makes the whole economy circle the drain with ever increasing speed.
In All Fairness…The Downside:
Mondragon, for all its delightful features, is not a perfect organization. Being honest about the downside, allows us so see the potential pitfalls and avoid them for ourselves.
Mondragon joined conventional firms in foreign countries for some of its ventures. Many of these countries have laws prohibiting cooperative organization. This left future membership status of foreign workers unresolved, diluting the labor pool with workers who have no voice in the company. Mondragon has actually considered the sale of non-voting securities on the public stock exchange through an intermediary institution. This would further dilute worker ownership with capital investor ownership.
Also, 10-12% of the workers are “temporary” workers and 12-15% are salaried employees. MCC allows up to 30% of their workforce to be nonmembers, but temporary employees (mostly female) are not counted in this number. Mondragon is using woman as a reserve cheap labor army and disposable work force. True, women do better in Mondragon than traditional companies, and have a higher presence in management. However, things are not quite equitable for them. Remember, the majority of members fired during the Ulgor strike were women.
The Ulgor strike points out one other problem plaguing Mondragon. Ulgor’s large size at the time, made the coop bureaucratic. The worker’s concerns were ignored by upper management. Since the strike, coops have tried to limit themselves to 400 members. Large coops are divided to maintain their size.
However, Mondragon, itself, is huge. Global competition forced the overarching structure of Mondragon to become centralized and bureaucratic over the years, making them less responsive to workers. Power is being centrally concentrated and control of the managers is moving away from the workers and toward senior executives. The Social Councils’ power is severely curtailed and accountability is slipping away. Senior executives appear to make decisions on a profit-maximizing ideology instead of the people-oriented ideals originally laid out by Don Jose.
Due to the rapid increase in corporate management salaries elsewhere, Mondragon has had to increase their solidarity ratio (the ratio of the highest paid workers over the lowest) from 4.5:1 to 6:1 or as much as 15:1 in some cases. Salaries are even higher for competitive fields.
Critics of Mondragon argue the work pace for labor has become grinding and the Social Councils have no real power to protect workers. Mondragon bans worker unions, forcing workers to use Social Councils. Labor complains that Social Councils “rubber stamp” the Boards ideas because they do not take the time to understand the complexities of modern business. General Assemblies have even less time to comprehend these intricacies. Fatigued and apathetic workers are unlikely to question the Board’s decisions.
Profit efficiency over human well-being has contaminated bank thinking as well. The bank created a system in which the greater a coop’s success and profit, the smaller the percentage going to the individual capital accounts (individual pension fund). Increased profits are deposited in the collective reserve, instead. Yet, if a coop suffers a loss, up to 30% of the loss comes from the individual capital accounts and not the collective reserve.
This resulted in huge reserves for the bank, at the expense of individual capital accounts. These reserves are held in common and belong to no one. If the business fails, the reserve is donated to charity. The banker’s preoccupation with safeguarding reserves forced them to lose sight of their primary mission to serve the worker/owners. It calls into question whether bankers should be allotted so much control. A different organization may be necessary for the bank.
Next time, I talk more in depth about the lessons revealed by the Mondragon story and how it might influence our lives today.
Mondragon Miracle Part 3 of 3:
The Lessons Learned
“Nothing differentiates people as much as their respective attitudes to the circumstances in which they live. Those who opt to make history and change the course of events themselves have an advantage over those who decide to wait passively for the results of the change.”
Over and over, I see commentary asserting we are stuck with our current cultural norms. The “rational” people of the world patiently explain to me how I am too idealistic. I am naïve and believe too deeply in the good nature of most people. Yet, the rational people only have their assertions to stand on. History is fraught with examples of people who fought for and won real change. People like the Basques in Mondragon. They created lasting change under deplorable conditions. Even a cursory review of history shows change occurs when and where people decide to change. You don’t live in a feudal monarchy rife with slaves and infanticide—all well ingrained institutions the Ancient Greeks considered necessary evils of civilization—because people decided to change.
In the first part of this series, I described how a Jesuit priest named Don Jose created a Basque cooperative--Mondragon. He could hardly have started from a more impossible position. Basque was severely oppressed, poor and under a harsh dictatorship. His Church considered him a pariah, and he was a poor speaker and sermon writer. Yet, he refused to dwell on his disadvantages, concentrating on finding Basque strengths, instead.
In part two, we examined Don Jose's unique genius in organizing his local society. He felt it was never necessary for someone to win while someone else lost. That scenario showed a lack of ingenuity. He examined problems until he saw a solution allowing the common good for everyone.
Some argue Mondragon arose from Basque because a specific set of non-reproducible circumstances existed. To me, that sounds like rationalization to let ourselves off the hook for not seeking to better our world. While I agree Mondragon originated in Basque due to a specific set of circumstances, clearly those factors are not needed to reproduce cooperative society.
What may be necessary is a certain environment in order to affect positive change. This post will look at some of the factors influencing people’s willingness to change during the creation of Mondragon and how to use those factors to enable change in our own culture.
In the beginning, Don Jose, himself, was Mondragon’s biggest asset. He easily could have preached the value of a sterling soul and ignore the material state of the people as an impossible secular problem, but that was not his style. Soft-spoken native of Basque, known for his pragmatic outlook, and self-effacing nature, he had tremendous presence and charisma. He led by example, not just by words. The respect he garnered allowed him to persuaded people to do remarkable things. He continued to push for excellence and to keep Mondragon on the cutting edge. He was also visionary in his scope—suggesting the creation of the self-capitalizing bank and constantly trying to anticipate what the cooperative would need to survive in the future.
A proactive, charismatic leader, who is seen as one of the people, may be a requirement for change—a face to the revolution. That is the wave that swept Obama into the White House before “Yes we can,” became “Oh no you don't.”
Basque has a cohesive culture absent in the US, if not the world. Shared farming practices, never entirely wiped out at the dawn of capitalism by enclosure of the commons, formed the basis of their heritage. Village life was consensually democratic. These anarchist traditions included views on ownership and shared work allowing them to accept the teachings of Don Jose.
Their strong sense of identity and community were only made stronger by Franco's harsh treatment. It unified the people against him. Joining the cooperative was seen as a rebellious act. They taught in the forbidden Basque language and formed covert Basque folk dances and music groups through the cooperative. The coop was associated with illegal underground political parties. The oppression they shared in common allowed the Basques to put their own self-interests aside and make decisions for the common good of their community.
Racism in America would have completely faded away if it were not so useful to the powerful. It divides the masses into easily controlled factions. When the powerful tried to divide teachers and police in Wisconsin, look what happened. No previous division existed for the powerful to exploit and solidarity was the result.
To affect real change in North America, an overriding self-identity encompassing all workers needs to develop. This identity must transcend race, religion, party, geography or other superficial divisions. Wisconsin showed us the way, when demonstrators held up signs saying "We are Tahrir Square" and Egyptian rioters sent them pizza as an act of international solidarity.
A Helping Hand:
The Spanish government inadvertently provided a great deal of support to the budding Mondragon cooperative. Don Jose took advantage of laws to help local corporations and farming cooperatives recover from the war. The initial capital loans came from the government and economic protectionism excluded foreign corporations, giving Mondragon room to grow.
Today, many laws protect banks and multi-national corporations. With creative thinking, cooperatives could take advantage of those laws. Which state is the best state to incorporate in if you are a cooperative? Which state has the most favorable laws? Can you get loans and aid from the Small Business Association? Can we take advantage of tax loopholes?
Mondragon has taken on ventures in foreign countries with different laws that prohibit cooperatives. Cooperatives should seek to change the laws and the landscape of the world from a corporate friendly landscape to a cooperative friendly landscape.
We should seek to change the laws in the US and Europe to protect businesses that protect workers. Mondragon would not have flourished in the beginning, if it had faced free trade with countries who have no worker protections and paid their workers less than it costs to live.
“Education is the natural and indispensable cornerstone for the promotion of a new humane and just social order.”
The power of having a shared vision, goals and adopted culture cannot be overestimated.
Don Jose understood this. His school provided a pool of like-minded individuals from which to start his endeavor. He used the education system not only to educate people in a trade and to understand the world, as most schools do, but also to instill in his students a sense of community and group cohesion. In order for work place democracy to survive, ethical considerations and fairness must also thrive. Don Jose's ethics encompassed hard work, personal sacrifice and appreciation of personal competence and learning. But it also emphasized collaboration over competition and the well-being of the worker over the greed of the owner. Those basic ideas form the foundation of the cooperative even today.
The Right, in America, with their rewriting of history textbooks and censorship of classical literature, has been engaging in social engineering via the educational system for decades. The very documents establishing compulsory schooling in America state the reason for such schooling was to garner a large passive and willing work force. The current education system creates a pool of people from which the Right can draw for support.
For the Left to have enough people understand or even listen to our ideas, we must do likewise. We must either open our own schools, or change the existing system as the Right did decades ago. Our schools cannot separate basic skills from ethical lessons. Social justice is the foundation of a cohesive community and must be taught in any nation dependent on democracy.
“We will build the road as we travel.”
Mondragon not only concentrated on industrial/manufacturing coops, but also did what was necessary to support the labor force running manufacturing. Don Jose understood only human beings add value to capital, never the other way around.
The bank (Caja Laboral Popular) was extensively covered in Part II of this series. Mondragon also has a consumer co-op department store (Eroski) where surplus (profit) is channeled to the consumer/members in lower prices. An insurance coop (Lagun-Aro) provides social security, pensions, health care insurance. Innovation and R&D are provided by Ikerian. Education by 43 schools and a university run by Mondragon.
Mondragon’s education system did not focus on a narrow aspect of being a citizen, becoming a worker, but broadened its perspective to being a citizen. When the student became an adult worker, Mondragon did not focus just on the profits the worker produced. It broadened its focus to include the well-being of the community from which the worker originated. In Mondragon, every act of business reinforces the community and the well-being of the worker. The business itself is the social safety net and an educational system and a health care system and anything else the worker/owners need it to be. They not only created a work environment, but an entire culture in which the community learns, works, shops, and lives in a cooperative environment. Unlike the average grocery coop in the States, Mondragon is its own community.
Any successful movement for change in the US should heal the artificial rifts created by our economy that fracture our communities. Doing so will enable us to work smarter and easier, freeing us for other endeavors.
What does your community need right now? Health care, reliable pensions, disability? Those are a given. Could you capture the spirit of Don Jose and find a way to coop political action so Congress had to pay as much attention to workers as they do to multinational corporations? Can you think of a way to tie in media so the majority had access to reliable information and ideas they could use and not just passively absorb the propaganda of the rich and powerful? What can you create using this economic form? I'd be interested to hear what you come up with in the comments.
The Middle Way to Work place Democracy:
“Work is the means adopted for attaining a higher level of satisfaction for human aspirations and demonstrating collaboration with the other members of the community to promote the common good. To ensure that it is contributed freely, productively, and in a manner that makes everyone’s collaboration viable, the members shall respect its discipline, namely a hierarchy.”
Studies show Mondragon is more productive, profitable, better at creating jobs, and job security than the top 500 traditional companies in Europe. Forty-three studies show the closer a company gets to Mondragon, the more productive it becomes.
Both the capitalist and the communist assume, where economics is concerned, the average person should not run their own lives. Only elites or government bureaucrats should make important decisions.
Surprisingly, the strict anarchy of the traditional coop is even less effective than the corporation’s rigid hierarchy. Born out of the 70’s communal movement that created the internet, traditional coops required no leadership. They ran by radical democracy instead. But strong personalities emerged as a type of hidden leadership. Prohibited from uniting in groups to defend themselves from strong personalities, the entire group suffered until the cooperatives fell apart.
Both the rigid hierarchy of corporations and the lack of structure in traditional coops are inefficient. The rigid structure of the corporation is unable to bend and flex to changing needs. The structureless anarchy of radical democracy breeds its own tyranny of informal cliques and hidden leaders. Both are breeding ground for resentment.
Don Jose understood the paternalistic work relationship between the capitalist and the laborer would forever work to destroy community and enslave the worker. In this relationship, the chooser (capitalist) always has a parent to child relationship with the doer (labor). He determined the chooser and the doer had to be the same person. This leads to more equitable adult-to-adult relationships with more contentment at work. Decisions in this relationship are not solely based on self-interest, but on the common good—solidarity.
He also understood the dynamics of human nature and strong personalities. He shirked capitalist paternalism making the laborer also the owner. Equally, he snubbed the hard left philosophy of refusing to have managers at all, elected managers from the work floor, or job rotation, avoiding the common problems of other coops. Leadership was hired and granted time to prove itself on the floor lest they suffer replacement.
Of late, globalization pressure has forced Mondragon away from this thinking and made the coop more like a traditional corporation. New endeavors in cooperatives should take heed of the warning this provides, and build resilient power for the worker into their organizations from the start.
Beyond village size, communication becomes a problem. The strike at Ulgor is very instructive in this regard. Worker coops require a hard core of democracy (one person =one vote) instead of plutocracy (one dollar=one vote). They need decentralized organization and a culture of self-management. They must reinvestment in jobs and in social responsibility. They require creativity, innovation and education. They need to keep reaching outward, beyond the comfortable confines of home to a global perspective. All this requires adequate channels of communication and a balance between management and labor power. Consultation and negotiation have to take precedence over demands and threats.
It does take work and vision to maintain even the smallest of democratic institutions. Workers must be trained in both social and professional realms. Transparency of management and the nuances of business must be maintained. Internal promotion should be the basic means for covering positions with greater responsibility.
High levels of complexity can be obtained, but the basic unit of power must be kept within a realm where real face-to-face communication occurs. This limit is around 300-400 people.
The Meaning of Wealth Creation:
“After the socialization of culture, inevitably follows the socialization of wealth and even of power. We may say that this is the indispensable and prior condition for the democratization and socioeconomic progress of a people.”
In the US, we have accepted Friedman’s assessment of human nature as inherently lazy and irresponsible, requiring both punitive measures and enticements. Labor is merely rented by the capitalist, who takes all the risk and makes all the decisions, but also reaps all the rewards. Yet, the capitalist could achieve nothing without the worker. Capitalism does deliver needed goods, but it does so by grinding humans to dust with a near constant state of fear. Work need not be oppressive, as both the capitalist and socialist systems seem to demand. Workers do not need to be infantilized, and, in fact, companies that treat their workers as adults do better economically.
Conventional business ranks their priorities capital-production-management-labor. Mondragon reverses this paradigm. People rank the highest, things and money the lowest. Mondragon decided capital should be rented (the loan from the worker/owners) and labor should take the risk, make the decisions and reap the rewards.
Corporate management has vastly increased the amount of material wealth. But the object wealth should serve, the human being, has largely been ignored, creating global misery along with the wealth. It has done this without regard for the needs of the planet. Its conversion of raw resources to capital now threatens our very existence.
Mondragon shows us an alternative route. Instead of putting material wealth over human well-being, it takes as its goal the dignity of the human in his/her labor, social solidarity and the primacy of labor over capital.
Mondragon did not adhere to any economic philosophy. Profit alone was not the driving force, but the welfare of the workers. They put making new jobs ahead of making better return, both for their factories and their bank. Instead of protecting capital over jobs, they protected people over capital, and in so doing preserved the capital as well.
Currently, by law, American companies have only one mission—to maximize the profit for the shareholder. Even if the Board of Directors or the shareholders want another goal, it is their legal responsibility to fulfill the profit goal. This relationship has been a disaster since its inception—for the workers and the capitalists as well. What will a rich capitalist do when there is no water to drink or air to breathe? Clearly, our relationship to corporations and their primary goal must change.
The Role of the Bank as a Positive Stabilizing Force:
Mondragon melded traditionally separate institutions like banking and education with manufacturing. Most of their enterprises started the same way Ulgor did, with a group of friends (never an individual). The already established bonds of friendship are the best foundation on which to build. The bank then provides the needed capital and sticks with the new business until it is well established. If the business stumbles, the bank can waive the interest on the initial capital loan, payments might be suspended, or the entire loan might be forgiven. As long as the community remains behind a venture, the Bank supports it.
Each new cooperative is thoroughly researched with a book long feasibility study—location studies, sociological analysis, market analysis, product development, building plans-- are all done prior to one cent of investment. Additionally, they consider the impact of any new enterprise on health, safety, environment and social responsibility.
Only three of their ventures have every failed. They invested much more conservatively than traditional corporations. In Western Corporate world, venture capital is invested by people who are paid to watch over other people’s money. The recent catastrophe in the market demonstrates the lack of wisdom in such a system. People of this nature invest for their own benefit, even when the investments are unlikely to pay off for the investors, themselves.
Mondragon’s investment capital belongs to everyone in the company and those directing the investments are elected. New ventures are researched thoroughly and once a venture is started, all the resources of the bank, social institutions and other branches are utilized to stabilize the new venture and make it a success.
The bank provides mentorship for new coops and gives established coops strategic guidance, and up-to-date marketing reports. It works with R&D to suggest new products. Once established, coops become part of a strategically planned network and share in marketing, legal help, human resources, training and finances. All powerful resources, the average small company in the US could ill afford.
Mondragon went to extreme lengths to provide its own social safety net to its workers: Retirement, 85% pay for a year if laid off, healthcare, education, housing, childcare. Nothing was off the table and it created worker loyalty and efficiency. Worker/owners get a job guaranteed for life, the community gets a stable commercial sector, and consumers get high quality goods at a lower price. Everyone wins.
Thank you Don Jose.
This is the conclusion of the Mondragon series. I hope you enjoyed reading it as much as I enjoyed writing it. I would very much like to see your comments and out of the box suggestions to bring this sort of system to wider world.