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The Mondragon model: how a Basque cooperative defied Spain’s economic crisis

Back in the early 1980s, the former Secretary of State for Education in Harold Wilson’s Labour government, Shirley Williams, alerted me to a remarkable instance of regional economic development through…

The Basque cooperative Mondragon has remained resilient, despite Spain’s deepening economic slump. Flickr\Fagor Automation

Back in the early 1980s, the former Secretary of State for Education in Harold Wilson’s Labour government, Shirley Williams, alerted me to a remarkable instance of regional economic development through employee empowerment, centred on Mondragon in the Basque region of Spain.

Taking an early opportunity to see for myself, it was impossible not to be impressed by what was already the world’s largest grouping of worker co-operatives, and my admiration has grown over subsequent visits, most recently late last year.

My 1999 PhD thesis and Mondragon book,Jobs of Our Own: Building a Stakeholder Society, set out in detail the origins of the co-operatives, how they work and the outcomes that have been achieved.

Noteworthy in particular is their commitment to manufacturing excellence and export growth, through cutting edge technological innovation.

At the time of my first visit in 1985, their R&D priorities were already industrial robotics, computer assisted design and control systems, artificial intelligence and sustainable energy sources.

Faced in the aftermath of the global financial crisis with circumstances — where unemployment nationally is in excess of 25% and 53% among young people — Mondragon has demonstrated impressive resilience in helping keep jobless levels in the Basque region to under half the national average.

Even so, the ongoing economic crisis has not left the co-operatives unscathed, and their return to growth has only recently gained momentum.

For the first time since its inception in 1959, Mondragon’s Eroski worker/consumer cooperative — until now Spain’s largest and fastest growing chain of supermarkets, hypermarkets and shopping malls — experienced losses consequent on reduced consumer demand, and only in the current financial year anticipates a return to profitability.

Fagor, Spain’s largest manufacturer of domestic appliances (and also part of the Mondragon cooperative), has successfully managed down production by 30 to 40% in the face of a precipitous contraction of the consumer durables market.

The cooperative group’s Caja Laboral credit union — effectively Spain’s ninth largest bank — is recovering from a 75% reduction in its profitability.

The essentials of the Mondragon story are simple. What arose in 1956 as a handful of workers in a disused factory, using hand tools and sheet metal to make oil-fired heating and cooking stoves is today a massive conglomerate of some 260 manufacturing, retail, financial, agricultural, civil engineering and support co-operatives and associated entities, with jobs for 83,800 workers, and annual sales in excess of $US20 billion.

Mondragon co-operatives now own or joint venture some 114 local and overseas subsidiaries, and are committed to their conversion to employee ownership on a case-by-case basis, consistent with local laws, customs and other cultural and economic considerations.

As equal co-owners of their workplaces, members enjoy job security together with individual capital holdings, equal sharing of profits on a proportionate basis and an equal ‘one-member one vote’ say in their governance. Remuneration within the cooperatives is egalitarian, with the highest rates payable other than in exceptional circumstances being no greater than six and a half times the lowest.

And members share at one remove in ownership of a unique system of secondary support co-operatives, from which the primary or frontline co-operatives draw resources including financial services, social insurance, education and training and research and development.

For example, capital for expanding existing businesses and establishing new ones is drawn in part from the group’s bank and social insurance funds and workers are skilled to high levels at a university of technology, which is itself structured as a co-operative and attracts students in disciplines such as engineering and metallurgy throughout Spain.

Reflective of the high priority attached by the primary co-operatives to the competitive advantage of intensive research and development is the augmenting of the original Ikerlan research and development support co-operative with thirteen sister bodies, specialising in the needs of particular aspects of manufacturing activity and product development.

Faced repeatedly over their 50-year lifespan with cyclical economic downturns, the co-operatives have been able to avail themselves of significant flexibilities. For example, non-members employed on a temporary basis can be put off until conditions improve.

Members can agree to forfeit or postpone entitlements such as one or more of their fourteen per annum pay packets or the payment of interest on their individual capital accounts, or in extreme circumstances authorise individual capital account draw-downs.

Co-operatives experiencing reduced demand are able to transfer members to ones where it is increasing, without detriment to their rights or entitlements. And supplementary capital can be accessed from centrally held inter-co-operative solidarity funds.

One wonders what lessons for productivity, workplace wellbeing and industrial harmony might Australia learn from the Mondragon model of business.

Details and registration for Monday’s free public lecture and Q&A dinner with Mondragon spokesman, Mikel Lezamiz, are at http://www.eventbrite.com.au/event/4470958758/. Race Mathews returned recently from the fifth of a series of visits to Mondragon, dating back to the middle 1980s. He is a former federal MP and state MP and Minister.