CO-OPERATIVES : by Dr Race MathewsNews Weekly
Lessons from Mondragon
, June 5, 2004
Worker self-managed co-operative enterprises have had a chequered history. Should worker control, then, be dismissed as just another utopian scheme that won't work? Or can it offer a genuine alternative to capitalism and socialism? Former Labor MP and minister, Dr Race Mathews, investigates the remarkable 45-year-old success story of the Mondragon co-operatives in the Basque region of Spain.
The basis of distributism is the belief that a just social order can only be achieved through a much more widespread distribution of property. Distributism favours a "society of owners" where property belongs to the many rather than the few. It correspondingly opposes the concentration of property in the hands either of the rich as under capitalism, or of the state as advocated by some socialists. In particular, ownership of the means of production, distribution and exchange must be widespread.
As the American scholar Dermot Quinn points out:
"Co-operatives were essential to the distributist ideal. They combined ownership, labour for profit, reward for initiative, a degree of self-sufficiency, elimination of waste (as in the duplication of equipment or use of unnecessary middlemen) and a strong commitment to reciprocal self-help."
A priest, Don José Maria Arizmendiarrieta, was responsible for making distributism work last century with the establishment of the great complex of manufacturing, financial, retail, civil engineering and support co-operatives at Mondragon in the Basque region of Spain.
The essentials of the Mondragon story are simple. From a standing start in 1956, the Mondragon co-operatives have grown to the point where they are now the largest business group in the Basque region of Spain, the seventh largest business group in Spain and a major competitor in European and global marketplaces. What began 45 years ago as a handful of workers in a disused factory, using hand tools and sheet to make oil-fired heaters and cookers, has now become a massive conglomerate of some 160 manufacturing, retail, financial, agricultural, civil engineering, service and support co-operatives.
All told, the co-operatives employ roughly three per cent of the Basque region's one million workers. While the region has lost 150,000 jobs since 1975, and unemployment even on official figures fluctuates between 15 and 20 per cent, employment in the co-operatives has increased over the last five years, from 34,397 to 60,000, and further increases are anticipated.
Annual sales for the manufacturing co-operatives alone total more than $US3 billion, and sales for the retail co-operatives are in excess of $US3.5 billion. The MCC annual report for the year 2000 notes that sales of manufactured goods were up on 1999 by 18 per cent, investment by 37 per cent and assets by 17 per cent. Exports were up on 1999 by a further 22 per cent, to a stunning 49.4 per cent of all output.
The MCC is Spain's largest exporter of machine tools, and largest manufacturer of white goods such as refrigerators, stoves, washing machines and dishwashers. It is also the third largest supplier of automotive components in Europe - designated by General Motors in 1992 as "European Components Supplier of the Year" - and a leading supplier of components for domestic appliances. Total Quality Management awards gained by the manufacturing co-operatives in the year 2000 included the European Foundation for Quality Management's European Quality Prize, and Gold and Silver Q prizes from the Basque Foundation for the Promotion of Quality.
Whole factories are designed and fabricated to order in Mondragon for buyers overseas. In addition, the MCC has some 22 overseas business subsidiaries, manufacturing, for example, semi-conductors in Thailand, white goods components in Mexico, refrigerators in Morocco and luxury coach bodies in China. It is expected that the number of subsidiaries will to double to around 55 by the end of 2002.
MCC construction co-operatives carry out major civil engineering and building projects at home and abroad, including the building of spectator stands and other key facilities for events such as the Barcelona Olympic Games. The steel structure for the new Guggenheim Museum in Bilbao - a building comparable in stature and complexity to the Sydney Opera House - was fabricated by a Mondragon co-operative.
Not least, the retail co-operatives - Eroski and Consum - are Spain's fastest-growing retail chain, with some 47 hypermarkets, 796 supermarkets, 569 self-service and franchise stores and a range of other specialist outlets. An Eroski subsidiary, Sofides, operates three hypermarkets and a chain of 19 supermarkets in France. The MCC's financial co-operatives - the Caja Laboral Popular credit union (CLP) and the Lagun-Aro social insurance co-operative - are among Spain's larger financial intermediaries.
Mondragon has not only grown from its standing start into a major conglomerate, but survived with flying colours the points of inter-generational succession where so many of its counterparts, and co-operatives and mutuals of other kinds, are wound-up or become moribund.
To what then are the achievements of the MCC attributable? Firstly, the success of the co-operatives stems from the fact that every permanent worker is an equal co-owner of the co-operative where he is employed, with an equal say on a one-member-one-vote basis in the governance of the co-operative and an equal proportionate share in its profits or, on occasion, losses.
The key distributist objective of a well-judged distribution of property has been achieved in Mondragon. Members of the co-operatives have property of four kinds:
(i) Ownership of their jobs.
(ii) Direct personal ownership of the balances held for them in individual capital accounts, which earn additional income for them through interest to which they have regular access.
(iii) A shared ownership of the assets of their co–operatives, such as buildings, equipment and reserves, for whose governance and management they are directly responsible.
(iv) A further shared ownership - albeit less direct - of the secondary support co–operatives in which the primary co–operatives are major stakeholders.Spread of ownership
Nowhere else in the world has ownership of property been established on so well-distributed, diverse and entrenched a basis. In the words of a recent CEO of the MCC, Javier Mongelos, "The workers who own these co-operatives know their future depends on making profits".
Secondly, the primary co-operatives are serviced on a mutualist basis by a unique system of secondary support co-operatives. Arizmendiarrieta became aware at an early stage of the development of the co-operatives of the need for them to be self-sufficient. The support co-operatives were his answer. Capital is now sourced by the primary co-operatives from a support co-operative, the Caja Laboral Popular credit union (CLP), as is, for example, superannuation and other benefits from the Lagun-Aro social insurance co-operative, research and development services from the Ikerlan and Ideko research and development co-operatives and technical skilling from a university of technology co-operative.
The structure of the support co-operatives differs from the primary co-operatives, in that, pursuant to mutualist principles, they are owned and governed jointly by their workers and the primary co-operatives that source services from them. Profits distributed to workers in the secondary support co-operatives are linked to those of the primary co-operatives. Neither benefits without the other, and there is constant feedback to the effect that in order for either to succeed both must do so. Related interdependencies, reciprocities and mutual support are evident within the manufacturing, retail and financial sectoral groups.
Thirdly, the Mondragon credit union, the CLP, has been much more than simply a source of capital for expanding current co-operatives or creating new ones. In the phase of rapid expansion that preceded the maturing of the co-operatives as signalled by the establishment of the MCC, what was then the Empresarial or Entrepreneurship Division of the CLP offered a uniquely comprehensive and effective service for incubating co-operatives and ensuring their success.
Groups seeking to establish co-operatives were initially assigned a mentor or "godfather" to work with them in the preparation of their application for a loan. Once loans were secured, the mentors remained with the co-operatives in order to assist them in the setting up of their business and enabling them to operate profitably.
As a condition of its loan, a new business entered into a Contract of Association with the CLP that specified - among other things - the mutualist structure and processes it should adopt. It was likewise a condition of the contract that specified performance and financial data should be reported to the CLP on a regular basis.
Thanks to regular and comprehensive reporting, the CLP could count on receiving early warning where co-operatives experienced difficulties, and provide added specialist support through an Intervention Group within its Empresarial Division.Successful
So effective was the Entrepreneurial Division that only a handful of the co-operatives have failed to become going concerns. Consequent on the establishment of the MCC - on the move of the co-operatives from the Mark I to the Mark II stage of their development - the functions of the Empresarial Division have now been re-assigned, with some elements being incorporated within the MCC and others in new management consultancy support co-operatives.
Mondragon's on-going expansion is now much less through establishing new co-operatives, and more through strategic acquisitions and alliances.
Fourth - and finally - the co-operatives enjoy a significant degree of competitive advantage consequent on their ability to minimise what agency theorists call "the basic agency dilemma" - on their ability to reduce and perhaps ultimately eliminate divergences of interest which emerge inevitably between principals and agents in an agency relationship, and which thereby give rise to costs which defeat or detract from the purpose for which the relationship was created.
From the perspective of creating a more rational and equitable productive system, what Mondragon is primarily about is the evolution - albeit far from complete - of systems within which all principals are agents, and all agents are principals.
In so much as it can be said that the jury is still out on the replicability of evolved distributism in the Mondragon mould, the issue may well be less the practicality of such a credit union-driven distributist dawn, than the haunting concern to which Hilaire Belloc gave expression so memorably in 1937. In The Crisis of Our Civilisation
, Belloc wrote:
"The task is impossible unless there is still left in the mass of men a sufficient desire for economic independence to urge them towards its attainment
. You can give political independence by a stroke of a pen, you can declare slaves to be free or give the vote to men who hitherto have had no vote; but you cannot give property to men or families as a permanent possession unless they desire economic freedom sufficiently to undertake its burdens." (Italics are Belloc's).
Is there within the current generation of members of the co-operatives as fierce a desire for economic independence as motivated Arizmendiarrieta and his associates? And, if so, is there also among external well-wishers of the co-operatives a sufficiently fierce will to work with them in seeing that economic freedom is not only defended and extended within them but made accessible much more widely to those elsewhere in the world who might choose to avail themselves of it?- Dr Race Mathews is an adjunct professor in the Faculty of Business and Law at Deakin University and national secretary of the Australian Fabian Society. He was previously an ALP federal MP and state MP and minister, a municipal councillor, chief-of-staff to Gough Whitlam as Leader of the Opposition and a board member and chairman of the Waverley Credit Union. His books include Australia's First Fabians: Middle-Class Radicals, Labor Activists and the Early Labour Movement (1994) and Jobs of Our Own: Building a Stakeholder Society (1999).
The above article is an extract from a speech Dr Mathews delivered on distributism to the Australian Chesterton Society's recent national conference in Melbourne. Copies of his full address, complete with footnotes and references, are available from News Weekly on request.