Mondragn Workers Cooperative

Economic Intimacy, Economic Efficiency

Thomas Choate Planning Theory Nov 4, 2011

Social movements may lack all the paraphernalia of power: armies, wealth, palaces, temples, and bureaucracies. But by linking from a common vision and program, and withdrawing their consent from existing institutions, they can impose norms on states, classes, armies, and other power actorsi

INTRODUCTION | In 1992 Fukayama s pronounced that globalized capitalism would bring humanity not only to the pinnacle of civilization but to the end of history and in 2005 Friedman declared that The World is Flat; nonetheless, human societies continue to practice government in independent and nuanced ways that baffle outsiders. No other locale in twenty-first Europe epitomizes this independence more than Mondragnii, a town in the Spanish Basque Country. The Mondragn Cooperative is one of the most successful workers cooperatives worldwide and one of the most successful conglomerates in Spain. As of 2005, cooperatives were distributed among 218 companies over 50 cities in the Basque Country and 21 countries worldwide.iii The cooperatives are all held jointly within the Mondragn Corporacin Cooperativa (MCC). Begun in a town of less than 10,000 residents in the devastated aftermath of the Spanish Civil War, the Mondragn Corporation now includes more than 83,000 employees through a federation of worker cooperatives with 2010 revenues exceeding 14.7 billion euros.iv However, equally as important is the diligence with which the MCC has maintained the original principles of its cooperative mission. Mondragn is a principle driven, worker-owned and managed conglomeration of cooperatives. Decision-making power and participation are distributed widely throughout the organization and level of management. Mondragn began and remains a unique example of an integrated economic and social system that has thrived in profitability and growth for over 50 years. This paper treats the Mondragn Cooperative Corporation (MCC) as a social movement in struggle with its very right to exist and succeed within the globalized capitalist economy. First, modern workers cooperatives are briefly given context. A history of the environment and actors that gave birth to the MCC follows. MCC s

effectiveness to its purpose and the cooperative s evolution are then explored. Finally, the lasting effects of the MCC are considered as well as any impact on the planning practice. BACKGROUND | WORKERS COOPERATIVES Workers Cooperatives hold a particular power over the imagination, even those not born out of an ethno-linguistic tradition as mysterious as that of the Basques. This may derive from cooperatives ability to enact what seems impossible. Impossible because it is easier to imagine the end of the world than an end to capitalismv, or because cooperation is (falsely) equated to a lack of competition and A noncompetitive society would represent a bland experience a waveless sea of nonachievers the psychological retreat of a person into a cocoon of false security and self-satisfied mediocrity .vi But compete they do. Despite the impossibility of their imagining, workers cooperatives compete and persist within a variety of cultural contexts. Worker s cooperatives excel in labor intensive industries rather than capital intensive industries.vii Organization-wide familiarity with their business financial health allows for a level of flexibility uncommon in other business environments. These cooperatives have proven more robust in both typical business cycles as well as in events of financial crisis. For example, workers cooperatives may approve wage cuts or other measures difficult to approve in workplaces organized by traditional labor unions.viii Records in the United States suggest that corporations fail at a rate 50-70% higher than cooperatives in the short term, and 80% higher after five years.ix Nonetheless, there are areas where cooperatives are unlikely to out-compete corporations. Foremost, corporations raise capital with a facility all but inaccessible to cooperatives and use higher wages to attract the best talent. Nevertheless, worker cooperatives are a strong force in the global economy whose consulting is increasingly called upon for their managerial and economic expertise in a business environment. Are workers cooperatives a social movement or an economic movement? Within western traditions, workers cooperatives guide their values following the Rochdale Principles established in 1844 in Rochdale, England. The ICA (International Co-operative Alliance) has since taken responsibility for readapting and promulgating those principles, notably in 1937 and 1966 (see endnotes).x The Rochdale Principles outline seven guidelines to direct cooperatives plans and actions. These principles place cooperatives firmly within Zunes

analysis of parallel institutions as foundational to successful social movements.xi As will be discussed in the following section, the MCC could be conceived as a non-violent outlet for the labor union movements that militarized during the Spanish Civil War and were subsequently suppressed. It is best to first frame the cooperatives of Mondragn within the context of their creation.
Cooperation is an authentic integration of the person in the economic and social process, and it is central to a new social order; employees working cooperatively ought to unite around this ultimate objective, along with all who hunger and thirst for justice in the world of work -- Arizmendixii

HISTORY | MONDRAGN COOPERATIVE CORPORATION Today, Mondragn has industrial, retail and financial operations throughout Spain, manufacturing facilities in more than twenty countries, three major research and development centers, a multi-campus university, and its own bank and health care system.xiii The first cooperative of what would become the MCC was formed in 1956, the Ulgor (since renamed FAGOR), steel manufacturing company. However, Mondragn traces its roots to fifteen years prior, to the arrival of Fr Jos Mara Arizmendiarrietta (hereafter Arizmendi). The young priest appeared only two years after his escape from imprisonment by the fascists. However, history credits not Arizmendi s bravado, but rather his lack of charisma for begetting the cooperatives of Mondragn. Arizmendi felt that he could not provide his parish with the inspiration they deserved from the pulpit, while at the same time the Mondragn Steel Works announced the closing of its mill near the center of town, forfeiting hundreds of jobs. In 1943 Arizmendi organized a school of technology with five local engineers to combat the unemployment in the town. Thereafter, Arizmendi convinced the workers of the former steel mill to purchase it themselves and run it as a cooperative. The transformative piece of the equation occurred once the new steel cooperative reached its limit in borrowing credit. It was then that Arizmendi s formed the Caja Laboral Popular (Working People s Bank) in 1959. xiv The Caja Laboral Popular has since provided seed capital for local companies and subsequent evolutions of the MCC in a way unlike other cooperatives. In 1966 the cooperative group began its first exports, and in 1969 the EROSKI supermarket (meaning group buying ) was formed. In 1997 EROSKI became the largest supermarket chain in Spain with more than 200,000 consumer members.xv Also in 1997 the original school of technology reincorporated as the University of Mondragn. As of 2010 the university included six campuses and 400 academic staff.xvi For the most extensive and current

consideration of the MCC s cooperative businesses and research and development groups see either Williams 2007 work The Cooperative Movement, or the MCC website.xvii

INFLUENCES | Why are not more cooperatives as successful as the MCC? First and foremost, many countries antimonopolistic mandates preclude the legal conglomeration that has allowed the Mondragn Cooperative the control and advantage to succeed. The United States is a notable example.xviii Almost equally as important were four historical and cultural movements prevalent in Spain prior to the formation of the MCC. These were 1) the CNT anarchist labor movement, 2) the movement for Basque cultural and political autonomy, 3) Catholic Social Thought contemporary to that time, and 4) the asymmetries in European industry due to the destruction of the Spanish Civil War and World War II. Each of these influences will be briefly explored in order to illuminate the unique context from which the MCC developed.

The co-ops derived a surprising double benefit from Franco s regime: first, they were allowed to and in some ways even encouraged to exist through beneficial tax laws (that continue today); second, they could use Franco as a target of criticism and hatred so as to fortify their own xix internal sense of mission - - Union Representative outside of the cooperatives

INFLUENCES | CNT The CNT (or National Confederation of Labor) consolidated in 1910 from a diverse group of radical labor unions in Spain. Its roving headquarters symbolized its dedication to decentralization of power, although the heart of its movement was in Barcelona, popularly depicted in Orwell s Homage to Catalunya in 1938. The organization peaked in 1934 with more than 1.5 million members.xx However, with Franco s victory, a scant five years later, labor unions were strictly outlawed until 1958. Thus an enormous number of the surviving sympathizers to the cause of worker s solidarity were forced into hiding, exile or other means to express their politics. Arizmendi was familiar with the cooperatives of the CNT, similar initiatives in Catalonia, as well as the Rochdale cooperatives a century earlier in England. These examples provided a strong philosophical foundation for the MCC s principles.

INFLUENCES | CULTURE The Basque people have held onto their cultural and political autonomy more successfully than almost any other group in Europe through two millennia of conquests of the Iberian Peninsula. Most Basques provinces also possessed social institutions distinct from feudal Europe. Aspects of this include the elizate tradition where local house-owners met in front of the church to elect a representative to send to the administrative juntas. Another example was the fact that in the medieval period most land was owned by the farmers, not the Church or a king.xxi Although most rural populations in Europe could likely trace their antecedents back a few hundred years at the time, very few could trace a continuous history of more than a millennium as could the Basques. This provided a unifying force along culture grounds that only grew as Franco attempted to eradicate nonCastilian culture in Spain.xxii

INFLUENCES | RELIGION
Work is the attribute that gives a person the highest honor of being a cooperator of God in the transformation and fertilization of nature and in the resulting promotion of human well-being --Arizmendixxiii

Concurrent with the Mondragn Cooperative s most important period of growth was arguably the most progressive period for the Catholic Church. Catholic Social Thought had began to be popularized by Pope Leo XIII in 1891. Pope Leo XIII proposed a renewed contract to each person s fellows that obligated this pursuit over the pursuit of financial gain. This philosophy deeply inspired Arizmendi s work and would reach its pinnacle with the opening of the Vatican Council II by Pope John XXIII on 11 October 1962. Herrera writes that: Mondragn responds to a calling to holiness as an organization that competes successfully in a global market economy while maintaining its congruence with Catholic social thought.
xxiv

During a time when their overt political and cultural

allegiances were under attack Catholic Social Thought provided a way for the Mondragn workers to opening live their principles within the confines allowable under Franco.

INFLUENCES | HISTORICAL Lastly, in the outcome of the Civil War, Mondragn s isolation worked to its advantage. Despite sitting less than forty miles from the tragically memorialized Guernica, Mondragn suffered little damage. This gave

the town a strong relative advantage over the rest of Spanish industry, and after World War II, the rest of Europe. Although industrialization was a central focus of Franco s economic initiatives, a UN embargo against Franco ensured the Spanish economy a prolonged economic recovery. Rationing cards continued to be used until 1952.xxv Data from 1958 indicate that 82% of industrial enterprises employed only one to five workers.xxvi However, in 1953 the United States found commonality with the Franco s anticommunism. The two governments signed the Pact of Madrid, beginning the wane of Spain s isolation from the global stage, which would complete only with Franco s death in 1975. The years of isolation provided a unique incubator for the Mondragn cooperatives. When Spanish GDP and consumer spending began to increase in 1960 s Mondragn advanced beyond its competition. Cheney and Whyte emphasize: the second-order cooperatives such as

the Caja Laboral Popular, a social security system, and an educational system, which have allowed the cooperatives to achieve longevity and success in large part by buffering them from the ebbs and flows of the larger market and society.
xxvii

The business structure and its integration with Caja Laboral Popular, its source of

capital, gave the MCC liquidity and flexibility against which Spain s otherwise fragmented economy could not compete.xxviii Considering the profound range of forces and influences surrounding the MCC s formation, it is important not to simplify each for the sake of clarity. Mondragn developed within a unique context. Each of the influences above could not be considered without the influence of the others. However, Cheney argues that a final factor has been overlooked in analyses of Mondragn s long-term successes: dynamism and adaptability within the organization has created the mechanisms of direct and representative democracy as much as those same mechanisms of democracy created the dynamism.xxix Cheney s is an important point. It allows an agency on the part of the MCC that a purely historical and deterministic analysis foregoes.xxx

LASTING EFFECTS | There s more than one Mondragn, and they re changing in various ways Felix Ormaecheaxxxi Arizmendi s intention in forming the initial cooperatives can be narrowed down to two goals. He intended to combat the unemployment in the parish while at the same time creating solidarity among the

citizenry in the parish. He succeeded in accomplishing these goals many times over. The current mission includes ten guiding principles. These are 1, open admission, 2, democratic organization, 3, sovereignty of employee s work over capital, 4, subordinate character of capital, 5, participatory management, 6, payment solidarity, 7, intercooperation, 8, social transformation, 9, universal nature, and 10, education.xxxii The MCC s commitment to payment solidarity speaks succinctly to the how each of these principles are honored: the CEO, by choice, earns only nine times that of the lowest full-time worker in the entire corporation; CEO s in the United States commonly earn 600 times that of their lowest paid full-time employee. xxxiii These ratios are as consistently modest across the cooperatives. Mondragn may also have additional effects beyond its employee base once its performance in the recessionary context is fully digested by the business community. As noted previously, Mondragn was able to minimize layoffs to almost nothing during the economic crisis of 2008-2009 through shuffling employment among its departments.viii However, beyond these effects internal to the organization it is difficult to quantify the influence of the Mondragn cooperatives as a social movement. Nonetheless, the MCC s accomplishment of creating an employment vehicle for the town and providing a workplace for tens of thousands workers in which social capital with equal regard to monetary capital is a high accomplishment. Williams suggests that the MCC should bring its mission to a global scale now that it has accomplished the challenge of a local scale. However, they were created as a social movement with specific goals for a modest town. Theorists such as Williams either mistake their own agenda or those movements that inspired Arizmendi for the agenda of the MCC. Given the fundamental changes in context since the MCC s incorporation, it is unfair to judge the MCC by the demands of today s social theorists within a globalized economy. Arizmendi would have conceived of another entity altogether to achieve a globalized cooperative as proposes Williams. EFFECTS ON PLANNING Spatially, Mondragn has had a small impact on its environment despite its size and growth. The actual population of the town has not grown abnormally compared to other towns in the region. In fact, the legacy of mountainous terrain on Basque culture has proved stronger than even the influence of the MCC for the towns involved. This is despite the fact that few of the towns are more than thirty miles from the others.xxxiv In

addition, similarly minded initiatives within Spain more often join the MCC in order to take advantage of its vertical integration and capital flows rather than go out on their own. Planning has not had any strong relationship to the MCC project. CONCLUSION The Mondragn Cooperative Corporation continues to succeed on a local and global scale. Significant investments have been made in the development of Mondragon University and other training centers. All of this was accomplished by drawing from the successes and inspirations of the political movements in Spain and the broader Catholic social movements preceding it. Today, the globalized marketplace is a source of constant challenges to the core values of the cooperative business model. Globalization has also brought opportunities to the MCC. Mondragn has opted to internationalize in order to remain competitive within its local and international markets. To remain competitive in its business sectors, Mondragon can no longer base its success on a commitment to local businesses based on the original core values of Catholic Social Thought and preservation of Basque cultural independence. These challenges will test the MCC and its leaders ability to sustain the commitment to cooperative ownership, the Basque local economy, and to meaningful participation for its cooperative members.

ENDNOTES
i

Brecher. 2000. p24 Arrasate is the name of the town in the Basque language. Mondragn, the Spanish name, is more common in the literature. iii Williams. 2007. p116 iv http://www.mondragon-corporation.com/ENG/Press-room/articleType/ArticleView/articleId/1584.aspx June 1, 2011 v It is easier to imagine the end of the world than an end to capitalism , this quote has been attributed to both Fredric Jameson and Slavoj Zizek. http://qlipoth.blogspot.com/2009/11/easier-to-imagine-end-of-world.html 2009; and, Jameson (2003). Future City. New Left Review. http://newleftreview.org/A2449 Accessed 11/1/2011 vi Johnson and Johnson. 1989. p52 vii Lawless and Reynolds 2004 p7 viii , Economist March 26 2007 ix Williams. 2007. p9-10. Willliams notes this low rate of failure among cooperatives is likely due to number of people and community support a cooperative is likely to need before filing for incorporation. x The Rochdale Principles for cooperatives, as defined by the ICA currently are: 1. Open, voluntary membership 2. Democratic governance 3. Limited return on equity 4. Surplus belongs to members
ii

5. Education of members and public in cooperative principles 6. Cooperation between cooperatives 7. Concern for community Zunes. 2005 Arizmendi. 1983. p175. Trans. Cheney. 1999. p39. xiii http://www.mondragon-corporation.com Historical Background Accessed 11/1/2011 xiv Williams. 2007. p115. xv Ibid. As of 2005, more than 85% of the 15,000 employees at EROSKI work full-time and are owner-members, by company rule. xvi http://www.mondragon.edu/en/about-us/what-is-mu Accessed 11/1/2011 xvii www.mondragon-corporation.com xviii Sherman Antitrust Act 1890 xix Cheney. 1999. P55. xx Beevor 2006, p. 24 xxi Collins. 1986. and Trask. 1996. xxii With the exception of the province Navarra as return for its allegiance during the Civil war. Williams. 2007. p114. xxiii Jos Azurmendi, El Hombre Cooperativo,p 116. xxiv Herrara. 2004. p1 xxv TIME. 1952. xxvi Thomas and Logan. 1982. p29. xxvii Cheney. 1999. p56. xxviii Ibid. p29-30. xxix Ibid. p57. xxx See Cheney s analysis here for an indepth consideration of the relationship of the various bodies of governance and communication. xxxi Ibid. p35. xxxii Ormaechea, J. M., 1993. The Mondragn organization is grounded on 10 basic principles that balance individual, organizational and community needs:
xii xi

1. Open admission. Mondragn is open to all persons who are capable of carrying out the available jobs. There is no discrimination based on religious or political grounds, nor due to race, gender, age, or socio-economic levels. The only requirement is the acceptance of these Basic Principles. 2. Democratic organization. Workers are owners, and owners are workers. Each cooperative is managed by a system of one person-one vote. 3. Sovereignty of employee s work over capital. Workers join Mondragn and become owners after making a capital contribution at the end of a trial period. All workers are entitled to an equitable distribution of profits. The return on saved or invested capital is just but limited, and it is not tied up to the surpluses or losses of the cooperatives. 4. Subordinate character of capital. Capital is a means to an end, not an end in itself. Available capital is used primarily to create more jobs. 5. Participatory management. Worker-owners participate in decision-making and the management of the cooperatives. This implies development of self-management skills. Formal education and adequate information is provided to improve worker-owners ability to participate competently in decision-making. 6. Payment solidarity. Remuneration is regulated internally and externally. Internally, an agreed differential between the highest and lowest paid job is applied. Externally, a remuneration level is maintained in relationship with similar local industries. 7. Intercooperation. Cooperatives form Groups to pool profits, to absorb worker-owner transfers when necessary and to attain synergies. These Groups associate with each other to support corporate institutions. Mondragn associates with other Basque cooperative organizations to promote the cooperative model. 8. Social Transformation. Mondragn cooperatives invest a majority of their profits in the creation of new jobs. Funds are also used in community projects and in institutions that promote the Basque culture and language. 9. Universal nature. Mondragn proclaims its solidarity with other cooperative movements, with those working for economic democracy and with those who champion the objectives of peace, justice and human dignity. Mondragn proclaims its solidarity especially with people in developing countries. 10. Education. Mondragn cooperatives commit the required human and economic resources to basic, professional and cooperative education in order to have worker-owners capable of applying all basic principles mentioned above.

xxxiii xxxiv

Williams. 2007. p199. Cheney. 1999. p53.