Thursday, June 25, 2015

Economic Equality (Part 3: The Mondragon Model)

A common reaction to the possibility of worker ownership on a large scale is to dismiss it as pie-in-the-sky idealism, something that could never work in the real world, especially in the rough-and-tumble, high-tech global economy of the twenty-first century. If this is your reaction, I invite you to take a half-hour tour of the Mondragon website ( You will not just find a cooperative experiment that has succeeded now for nearly sixty years; you will also find a $38 billion (€34 billion) organization that is the seventh-largest business group in Spain with annual revenues of nearly $14.1 billion (€12.6 billion) and a workforce of 74,000. You will find a group of people who are very conscious of the unorthodox principles that guide their success. These numbers are down a bit from where they were in 2009, likely a result of the ailing Spanish economy and the effects of imprudent European austerity measures, but still impressive.
The Mondragon cooperatives’ product line is diverse, encompassing such goods as domestic appliances, office furniture, home furnishings, sports and fitness equipment, machine tools, automobile parts, automation systems, and electrical transformers. Mondragon is involved in the construction of large buildings and major infrastructure projects; operates 2,600 retail outlets, including hypermarkets, supermarkets, and specialty stores; manufactures complete installations for the hotel and catering sector; manages its own financial group, embracing three specific activities: banking, social welfare, and insurance; sponsors a university and several training and research centers; provides consulting services for civil, urban development, industrial, and environmental engineering; and offers a state-of-the-art language service. The Mondragon group of businesses is an impressive and vibrant operation, built upon the foundation of worker ownership and participative management.
All this began in 1943, when José María Arizmendiarrieta, a Catholic priest assigned in 1941 to Mondragón in the Basque Country of Spain, established a polytechnic school in the town. When Father Arizmendi arrived in Mondragón, the region was suffering from mass unemployment in the wake of the Spanish Civil War. Drawing on his studies in Catholic social doctrine, Arizmendi determined to focus his energies on economic development. He settled upon a system of worker cooperatives. On April 14, 1956 (which, by coincidence, also happens to be the day I was born), five graduates set up the first cooperative, based on Father Arizmendi’s economic principles, and soon began producing petrol-based heaters and cookers. As the cooperative grew and members developed ideas for additional products, new cooperatives were spun off and ventures were started in numerous industries, until there are now 289 separate companies under the Mondragon Corporation umbrella. Because of rapid expansion outside the Basque Country of Spain in recent years, only 110 of the companies are currently cooperatives and roughly a third of the workers are cooperative members. Most of the nonmembers work in the distribution sector outside of the Basque country. The relatively low percentage of cooperative participation at present is because capital can move from place to place with ease; not so cooperative workers. A core of workers who understand cooperative culture and principles is required for this form of organization to take root in a new area. In the short term, then, the umbrella organization has opted to create formulas that facilitate worker participation in the ownership and management of the companies in which they work. Eventually, these companies will become cooperatives. In fact, the Mondragon business group estimated in 2009 that in three years, 75 percent of its workers would be cooperative members. This plan was likely delayed by the economic woes of both Spain and Europe, but it is still the goal to convert most Mondragon businesses to cooperatives.
The Mondragon cooperative experience is founded upon four values and ten basic principles, including such ideas as open admission (to all men and women who accept the basic principles and can prove themselves professionally capable of doing the jobs the cooperatives create), democratic organization (the election by workers of all governing bodies on a one-person-one-vote basis), sovereignty of labor (labor is the main factor for transforming nature, society, and human beings themselves; consequently, the wealth created is distributed in terms of the labor provided, and there is a firm commitment to the creation of new jobs), instrumental and subordinate nature of capital (capital is an instrument, subordinate to labor, that is necessary for business development; hence, labor employs capital rather than capital employing labor), participatory management (this implies self-management, professional training, and internal promotion as a basic means of covering positions with greater professional responsibility), and payment solidarity (relative salary equality while recognizing industry equivalents).
In the early years of the Mondragon cooperatives, the pay ratio of the highest-paid worker to the lowest was 3 to 1. To account for income tax changes, this was later increased to 4.5 to 1. In the 1990s, after the creation of the Mondragon Corporation and due to the growing complexity of the organization and the day-to-day activities of the cooperatives, a salary ratio of 6 to 1 was implemented, reaching 8 to 1 for certain exceptional top-level managers. Job security is a high priority, and Mondragon offers better retirement conditions than most other businesses. It also distributes a portion of its profit annually to all members, although most is reinvested to strengthen the cooperatives and ensure a secure future for the worker-owners. Because of these principles, the Alto Deba region (where most of Mondragon’s cooperative businesses are located) has been ranked highest in Spain for both per capita income and equitable wealth distribution.
When asked if they consider cooperativism to be an alternative to the capitalist production system, the Mondragon response is typically practical: “We have no pretensions in this area. We simply believe that we have developed a way of making companies more human and participatory. It is an approach that, furthermore, fits in well with the latest and most advanced management models, which tend to place more value on workers themselves as the principal asset and source of competitive advantage of modern companies.”
The Mondragon model is just one possibility for converting traditional corporate forms to worker ownership. In coming weeks, I’ll introduce other options.

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