Mondragon through a Critical Lens by Jill Bamburg c/o Fifty by Fifty Employee Ownership News
Overview
Ten Lessons from a visit to the Basque Cooperative Confederation
Key Takeaways
On the possibilities of co-operative success:
Within the global cooperative movement, the Basque town of Mondragon occupies a special place. Founded in 1956 by Father José María Arizmendiarrieta, the Mondragon Cooperative Corporation currently consists of 102 federated cooperatives employing over 73,000 people. The vast majority of these worker-owners are in the industrial and distribution segments of the economy, competing successfully in global markets. In addition, the Mondragon cooperative system owns its own bank, university, social welfare agency, several business incubators, and a supermarket chain.
On the social safety net designed for Mondragon through a pension fund investment vehicle:
“Spain offers universal health care to its citizens and Mondragon offers its own universal coverage system. We didn’t have an opportunity to discuss the thousand relevant details, large and small, that would give us the basis for a good comparison to the rest of the US system, but we already know our ailing system offers the worst care for the highest price of any system in the developed world. Mondragon may offer a worthy alternative.
The Mondragon pension system is now well aligned and fully integrated with the Spanish government system. Mondragon retirees receive 60 percent of their pension from the government and 40 percent from the Mondragon system. In total, they receive 80 percent of their former salary, enabling them to retire without having to make major shifts in their lifestyle.
The government pension program is an unfunded system (pay-as-you-go), while Lagun Aro is an individual capitalization system. Lagun Aro pension funds are invested conservatively, thereby avoiding some of the self-inflicted insolvency problems created by the US profit-maximizing system. That said, for the public part, the Mondragon system faces the same basic funding issues of defined benefit programs worldwide: uncertainty about where the money will come from in a volatile economy where current workers paying into the system are not keeping pace with the extended lifespans of retirees.”
On the governance structure of Mondragon Cooperative Corporation:
The Governing Council is roughly equivalent to the Board of Directors; the Audit function corresponds to the audit committee of the board; the Managing Director to the CEO; the Managing Council to the executive leadership team; and the Departments to standard departments, whether organized functionally, divisionally, geographically, or along some other line.
The critical difference, as noted previously, is that the purpose of the firm is to benefit its members rather than its shareholders. The governance structures supporting that critical difference are the General Assembly and the Social Council.
General Assembly: In most of the Mondragon industrial cooperatives, this is the organization of all worker-owners. In the “second level” cooperatives, that is, the cooperatives that serve other cooperatives, such as the bank and the health system, member-owners include both employees and representatives of the cooperatives served. The General Assembly meets at least once a year to act on what sounds like a mostly pro forma agenda. That said, its members elect the Governing Council, which in turn selects the Managing Director. Thus, in a very significant way, the workers are directly responsible for the long-term strategic direction of the firm and they select their own boss, who reports to them. And in times of trouble, the General Assembly is a place for the entire cooperative to thrash out difficult issues.
Votes in the General Assembly are strictly apportioned on a one-member, one-vote basis. In a cooperative, the janitor and the CEO have the same voice in the General Assembly — in contrast to the capitalist shareholder system, where the number of votes is based on the amount of money invested in shares of the enterprise — typically by absentee shareholders who have no other interest in the firm.
Social Council: This is an entity that is, in some respects, like a labor union, because it represents the concerns of worker-owners, but from the lens of their experience as workers. Since the traditional division of interests between workers and owners cannot, by definition, exist in a worker-owned cooperative, the Social Council was hard for me to understand initially.
It is an elective body that represents worker interests to the Governing Council and Managing Director. It has an advisory role and does not make decisions. However, if an issue is particularly contentious and the Social Council is opposed to the decision of the Governing Council and Managing Director, it can bring the issue to the General Assembly for a vote of the broader membership.
According to what I’ve read, this happens very rarely (as one would hope and expect), but when it has happened, the decisions of the General Assembly have gone both ways — sometimes supporting “management” (i.e. the Governing Council and Managing Director) and sometimes supporting the “workers” (i.e. the Social Council). Disputes are resolved by the “owners” (i.e. the General Assembly), where all three roles are united in a one-member, one-vote democratic system.
While I don’t have enough data to draw firm conclusions, I believe this structure produces decisions that are both different from and better than those of capitalist firms in two specific ways. First, I think it strikes the right balance between the economic survival of the firm and the economic benefits to the individual workers. And second, because economic decisions may impact individual workers differently, the structure helps produce decisions based on “fairness” in balancing the needs of the few directly affected individuals with the needs of the many who are not. And all participants in the system are free to make choices with broadly defined benefits — not the narrow capitalist dictates of maximizing returns to shareholders.
On the value of intercooperation across industry:
In the wake of the 2008 financial crisis, Fagor Electrodomésticos, the largest of the industrial cooperatives, failed, eliminating the jobs of 1,800 worker-owners in 2013.
The cause of the failure was a “perfect storm” of three related issues. First, immediately prior to the recession, Fagor Electrodomésticos had expanded by buying a competitor in the household white goods sector; it financed the acquisition by taking on major debt. Second, the number of its Asian competitors was growing every day. And third, just as the cooperative’s expanded capacity came on line, the recession hit and the bottom fell out of the market.
What happened next is what was unusual. Because of the principle of “intercooperation” among the Mondragon cooperative enterprises — that is, the idea of connectedness and reciprocity among all the participants in the system — most the employees were relocated to other cooperatives. Some were offered employment in CATA Electrodomésticos, the private sector enterprise that took over the assets of Fagor Electrodomésticos. Some took early retirement, and a handful took a compensation package to leave the system. Some received unemployment benefits from Lagun Aro, the social welfare cooperative. By the time of our 2017 visit, only 60 former employees (three percent) remained unplaced.