ECONOMIC AFFAIRS: by John BallantyneNews Weekly
Mondragón worker co-ops ride out global slump
, March 19, 2011
Europe and the United States continue to suffer levels of economic stagnation and joblessness not seen since the 1930s. But the small town of Mondragón in the mountainous Basque region of northern Spain boasts an innovative business model which has successfully weathered the global economic downturn.
|Some of Mondragón's|
The Mondragón Co-operative Corporation is a network of co-operative firms, entirely owned and managed by the workers employed in them. It is commercially highly successful, exports quality manufactured goods around the world and boasts zero unemployment.
Worker self-managed enterprises, historically, have had a very mixed track record. They often start life, buoyed by the vision and enthusiasm of their founders, and enjoy a measure of success for a few years. All too often, however, the ideals of the founders fail to reproduce themselves in the next generation, and the enterprises lose their vitality.
Mondragón is altogether different. It has been operating successfully for 57 years, its workforce having grown from its original five founding members to its present labour force of 85,000 worker-owners employed in more than 120 co-operative enterprises.
Today's worker co-ops produce an impressive array of goods, including foodstuffs, computers, household appliances, refrigerators, ovens, vehicle parts and the celebrated Orbea bikes which won gold at the 2008 Beijing Olympics. Sixty per cent of Mondragón's output is exported.
This sounds almost too good to be true. Can worker self-management really be compatible with a commercially competitive business operation?
Some cynics dismiss the whole scheme as utopian without bothering to examine the evidence for Mondragón's undeniable success. Talk to them of worker ownership and they immediately dismiss the idea as being akin to socialism or, worse still, communism.
Nothing could be further from the truth. Mondragón thrives in a competitive marketplace and has no government support. Its operations are characterised by an absence of workplace conflict or strikes. Workers are not likely to take industrial action against entities they themselves own.
And, unlike the post-GFC zombie banks of Wall Street, which have been put on government life-support to the tune of hundreds of billions of US taxpayer' dollars, Mondragón stands on its own feet and sponges off nobody.
Mondragón's business model has attracted favourable notice from respectable bodies such as the Peter F. Drucker Foundation, the Harvard International Review
and Britain's conservative Daily Telegraph
A worker, in order to become a member of a co-operative, must invest €13,400 (AUD$18,400) in share capital. The sum accumulates interest over time and is repaid to the worker upon retirement. So, from day one, he or she has a financial stake in the success or failure of the enterprise.
Every worker has an equal vote. Joel A. Barker of the Drucker Foundation says: "The workers elect the board of directors and the board of directors hires the managers. This has a positive effect on the workers, because the people they elect are the people who hire their supervisors."
The co-ops are not cast adrift on the market without map or compass. Ready and eager to help them with their business plans is the Mondragón Corporation's own special-purpose community bank, the Caja Laboral. It produces up-to-date marketing forecasts for co-ops, provides low-interest finance to enable new co-ops to be launched, and makes available experienced staff from long-established co-ops to be mentors for newer ones.
In most of the corporate world, it is a sad fact that most new small business fail. In Mondragón, by contrast, most new enterprises succeed.
Barker observes: "The Mondragon bank ... always has the welcome mat out for anyone who wishes to create more jobs. Because of this attitude and the great skills Mondragon has developed in nurturing start-ups, its entrepreneurial success rate has been 80 per cent! That is the failure rate
for the rest of the world!"
Today, the Caja Laboral - which, like the Mondragón co-ops, started from humble origins - has grown to become one of Spain's major financial institutions. It has branches across the country, 1.2 million clients, a staff of 2,000, 21 billion euros worth of assets and 1.5 billion euros in equity.
Mondragón has its own university, made up of an engineering school, a technical school and what is now considered to be one of the best business studies programs in the Europe Union. It also owns, and invests heavily in, a number of research and development facilities.
Greg MacLeod, writing for the Harvard International Review
(April 4, 2009), describes the secret of Mondragón's success in achieving its annual job-creation targets and ensuring job security for all its members.
He writes: "Most large global corporations ... develop strategies to increase earnings through job reduction. Conventional corporate managers argue that a 'job creation' strategy necessarily leads to inefficiency and losses. But empirical testing suggests otherwise."
Individual co-operatives in Mondragón, observes MacLeod, are under "no legal obligation to retain workers, but jobs are effectively guaranteed". He says: "If there is a redundancy in one enterprise, the redundant workers have the right to available work in the other associated enterprises."
So, instead of workers being left to rot on the dole, they are speedily transferred to productive employment in other co-ops and assisted with retraining to enhance their value to the new enterprise.
This emphasis on constantly improving labour productivity also enhances the overall competitiveness of Mondragón's enterprises in the global marketplace. Mondragón's global director, Mr Josu Ugarte Arregui, says: "We can't offshore, so we have to keep climbing the technology ladder and improve core engineering here."
In order to ensure that workers should have a true sense of ownership of the enterprises in which they are employed, Mondragón's Caja Laboral bank prefers, wherever possible, to limit the size of individual co-ops. Once a co-op's membership approaches 500 worker-owners, the bank prefers to launch new co-ops rather then allow established ones to get any bigger. This is quite a contrast from the relentless process, seen in the rest of the corporate world, of economic mergers, acquisitions and takeovers.
According to Australia's Dr Race Mathews' classic work, Jobs of Our Own: Building a Stake-Holder Society
(1999, republished in 2009), studies have consistently shown that workers in Mondragón feel a loyalty to their firms and are "prepared to make significant sacrifices where necessary in order for their co-operatives to remain in business".
Greater worker contentment on the factory floor means less need for supervision. An American political commentator, Carl Davidson, once observed that self-supervision was a competitive advantage for Mondragón. He wrote: "Not having a lot of supervisors to pay meant lower prices."
The relatively narrow pay differentials in Mondragón are a contrast to the vast pay differentials in many large Western corporations, where CEOs can pocket up to 400 times the pay of the lowliest worker.
In Mondragón, top management seldom earns more than six times the income of the lowest-paid worker. "In reality", as Mondragón's global director Mr Ugarte points out, "it is just three times after tax."
In effect, if the top earner wants a raise, everyone in the co-op gets a raise.
It is true that some of Mondragón's high-flyers are enticed to work for outside corporations by the prospects of much higher salaries. However, an American writer Sergio Lub, who toured Mondragón two years ago, observed: "Sometimes a Mondragon manager leaves for a few years to work in a higher paid job; they often return. When I asked a senior executive why he stayed, he answered: 'It was an easy choice. Outside I may earn more money, but I would lose my community.' "
Ambrose Evans-Pritchard, international business editor of Britain's conservative Daily Telegraph
, in a recent article in which he praised the Mondragón model, discussed the link between increasing economic inequality and the recent global slump.
He said: "The solidarity ethos has its allure given mounting research by the IMF and other bodies that the extreme gap between rich and poor was a key cause of the global asset bubble and financial crisis, as well as being highly corrosive for democracies. The GINI index of income inequality has reached levels not seen since the 1920s across the West." (UK Telegraph
, February 16, 2011).
The Mondragón Co-operative Corporation (MCC) provides a comprehensive self-funded retirement income package for its workers, paid for partly out of direct worker contributions but also from the profits of the co-operatives themselves. The MCC used also to provide health care for all its workers until the late 1980s, when the Basque regional government took over that particular responsibility.
Who was the original brains behind Mondragón's pioneering worker-owned co-operative enterprises? It wasn't some high-flying MBA graduate from Harvard's business school, but a humble Jesuit priest, Father Don José Arizmendiarrieta (1915-1976).
Arizmendiarrieta was a farmer's son, whose studies for the priesthood were interrupted by the 1936 Spanish Civil War. He edited a Republican-leaning trade union paper Eguna
, was imprisoned by Franco's Nationalists in 1937 and was lucky to avoid execution.
On his release he organised study groups and workshops for residents of the war-torn and impoverished Basque region of northern Spain. After World War II, he started an industrial apprentice school and taught young men the importance of applying Christian ethics and Catholic social principles to the running of business.
In 1955, he encouraged five of his most promising students to buy a small factory that made paraffin-burning stoves. A year later they moved the enterprise to Mondragón, and from then onwards their pioneering experiment in Christian business practices and worker self-management began to take shape.
Today, Mondragón can no longer be dismissed as some well-intentioned but impractical scheme of limited relevance to the real world. By any standard, it has been a resounding success for a period of almost six decades. After the recent global economic meltdown, it deserves to be studied closely.John Ballantyne is editor of News Weekly.
Joel A. Barker, "The Mondragon model: A new pathway for the twenty-first century", an excerpt from Chapter 11 from Frances Hesselbein, Marshall Goldsmith and Richard Beckhard (eds), The Organization of the Future
(New York: The Peter F. Drucker Foundation/ San Francisco: Jossey-Bass, 1997).
Carl Davidson, "Mondragon diaries: Five days on the cutting edge: Studying real world worker-owned co-ops", SolidarityEconomy.net
, September 19, 2010.
Ambrose Evans-Pritchard, "Spain's astonishing co-op takes on the world", The Telegraph
(London), February 16, 2011.
Jeff Gates, The Ownership Solution: Towards a Shared Capitalism for the Twenty-First Century
(London: Penguin Books, 1998).
Peter Jay, "St George and Mondragon", The Times
(London), April 7, 1977.
Peter Jay, "Till we have built Mondragon", The Times
(London), April 14, 1977.
Peter Jay, "The Workers Cooperative Economy" (1977) in Peter Jay, The Crisis for Western Political Economy and Other Essays
(London: André Deutsch, 1984), pages 56–92.
Peter Jay, The Crisis of Western Political Economy
(Sydney: Australian Broadcasting Commission, 1981).
Georgia Kelly and Shaula Massena, "Mondragón worker-cooperatives decide how to ride out a downturn", YES! Magazine
(Bainbridge Island, Washington,: Positive Futures Network), June 5, 2009.
Sergio Lub, "The Mondragon cooperatives experience", Model Economy Community
, January 4, 2009.
Greg MacLeod, "The Mondragon experiment: The public purpose corporation", Harvard International Review
, April 4, 2009.
Race Mathews, Jobs of Our Own: Building a Stake-Holder Society: Alternatives to the Market and the State
(Sydney: Pluto Press, 1999).
Race Mathews: a selection of his articles and lectures is available from his website at: