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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.

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10 Comments sorted by

  1. Dale Bloom

    Analyst

    An interesting account of co-operatives can be found here.
    http://www.australia.coop/ca/

    I have worked in a co-operative factory in Australia, and there was a greater sense of ownership and teamwork than in privately run businesses I have worked for, and I tend to think co-operatives would be an improvement over government or publicly owned.

    However, a co-operative can still employ casual workers, and I think employment of large numbers of casual workers is the greatest factor that decreases productivity and efficiencies over the longer term.

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  2. Jack Arnold

    Polymath

    Thanks Race for an interesting article about a phenomenon that I was introduced to in the early 1990s. It is pleasing to see that this wonderful example of co-operative economic development continues.

    Co-ops have a long history in Australia, including agricultural marketing, that has been successful to the extent to which the membership is prepared to be involved in the 'management control'. Then, as Fletcher Jones discovered to their fatal disadvantage, being an efficient co-op in Australia…

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  3. Michael Lenehan

    retired

    "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" - sounds a little less than egalitarian to me.

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    1. Race Mathews

      Senior Research Fellow (retired 1998), doctoral candidate at University of Divinity

      In reply to Michael Lenehan

      Michael: Compression factor is in practice much higher and differentials much lower than the six and a half times figure conveys. Also insufficient space in the article to explain the democratic character of the process by which rates are struck, primarily through social councils elected on a departmental or shop-floor basis. For a detailed account see my 'Jobs of Our Own: Building a Stakeholder Society' pp 200-202.

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    2. Valerieanne Byrnes

      Consultant

      In reply to Race Mathews

      The Mondragon experience for me was exciting– cooperation and democracy at work based on the needs of the workers and the Basque community - in action and on a grand scale. It was also an exhausting experience as I quickly realised they were not immune to the usual work and life challenges. Staff disputes for example . It was not perfect – it was real.

      Day to day they democratically work through issues to keep people in their regions employed, engaged, developed and empowered. Not just one organisation…

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    3. Race Mathews

      Senior Research Fellow (retired 1998), doctoral candidate at University of Divinity

      In reply to Valerieanne Byrnes

      You might be interested in a moving example of how far afield awareness of Mondragon has spread at http://overland.org.au/previous-issues/issue-208/feature-michael-green/. But seems to me that a key factor in its success was the time and care its founder, the Basque priest Don Jose Maria Arizmendiarrieta was prepared to take over the clarifying of his thinking and the formation of the young workers who ultimately established the co-operatives, in the process which he summarised so memorably as 'We build the road as we travel'.

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  4. Kim Peart

    Researcher & Writer

    Excellent article Race

    and thanks for sharing.

    Your book is now on my "To Get " list.

    I found the Mondragon cooperatives in the 1991 Gilman book on Eco-Villages and have wondered if this approach to commerce would be one way to build a fairer world.

    With a view to a community-driven space program in Australia, I wonder if the cooperative model is the one to suggest running with.

    We have developed a virtual space program in the virtual world ~

    see our article ~ 'The Birth of the VOSS' ~ and ~ 'Driving the VOSS Vision' ~ under VOSS in our website ~

    and also look toward a hands-on activity with a space design centre.

    Could be the way to run with our project?

    Suggestions welcome.

    Kim Peart
    http://www.islandearth.com.au/

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  5. John Newton

    Author Journalist

    Thank you for this. Co-operation, decency in the workplace...radical. How many Australian Mutual Societies - NRMA, AMP - have been sacrificed to the greed of the capitalists?

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    1. Race Mathews

      Senior Research Fellow (retired 1998), doctoral candidate at University of Divinity

      In reply to John Newton

      Thanks John. I've written fairly widely about demutualisation, why it occurred and how it might have been prevented or minimised, in papers that are on my very much in need of updating web site at http://www.racemathews.com/index.htm. Reminiscent really of Kipling:

      And when your goal is nearest
      The end for others sought,
      Watch Sloth and heathen Folly
      Bring all your hope to nought.

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    2. Michael Leonard Furtado

      Doctor at University of Queensland

      In reply to Race Mathews

      Ah, what a lovely quote, Race, and thank immensely for an inspiring peace, which reminded me, if I may, about what Labor achieves at its best: corporatist, syndicalist, drawing workers into an appreciation of the true benefits of their ownership of the means of their production, localist, subsidiarist, etc.

      I'm not surprised that it was Shirley Williams, the Social Democrat leader that never was, who put you onto this. She made a great UK Labour Education Secretary and was powerfully influential…

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