The Mondragon Experience
by M J Murray
Part Two: Workers’ Control and Ownership: the Mondragon Experience
“….Mondragon is not Heaven, and we are not Angels…” – Mikel Lezamiz, Director of Cooperative Dissemination, Mondragon Corporation.
Introduction to Part Two
This article is meant to build on Part I: the short historical introduction to the origins of Mondragon and its current state of development, up to the 2013 Annual Report – the latest printed report made available to us.
In Part Two, we look at the basic structure of Mondragon under three, interconnected headings:
“Mondragon: An ongoing dialogue with The Ten Founding Principles”;
“Participative Management and Democratic Organisation in Mondragon.”
“Ownership and Financial Participation Structures in Mondragon”
Future issues of this magazine will carry the following articles:
“Identifying the factors in the Competitive Advantage of the Mondragon cooperative model over conventional capitalist companies.”
“The future of cooperativism in the neo-conservative-dominated sector of the Global economy: the Mondragon experience.”
“Case Study: The shutdown of the Mondragon co-op “Fagor Electrodomesticos,” affecting thousands, in 2013; how that came about and how it was handled.”
“Trade Unionism and Cooperatives: The case of Mondragon.”
This series of articles was born out of a study visit to Mondragon H/Q by Dave Fennell and myself, on the invitation of Mikel Lezamiz Director of Cooperative Dissemination.
On our visit, apart from the H/Q staff, through Mikel we met an Organisation Development specialist from one of the industrial co-ops, a post-grad studying Co-operative Management preparatory to working in a Mondragon Co-op enterprise. And, most interesting, the affable newly appointed General Manager of a Shanghai co-op, in Mondragon H/Q on a familiarisation visit prior to taking up his post,
It’s true to say, we returned from the Mondragon visit with more questions than we had brainstormed in preparation for the trip. We’re not complaining about that, it shows how useful – and stimulating the trip was. For this we are particularly grateful to Mikel Lezamiz for the time and effort he put into organising the visit and hosting us. We also came away with a generous gansey-load of take-away information on Mondragon. From Mikel , we got a good steer on the vast literature building up around the phenomenon of a globally acknowledged trendsetter in cooperativism. (Mikel, seeing we were Irish, thought we might like to participate in the “Korrika,” an event to publicise and fundraise for the Basque language. We were honoured to do so.)
At this point, on behalf of my colleague Dave and myself, a big Basque “thank you” to you and your colleagues : “Askerrick-asco” (phonetic)
And the information flow didn’t begin or end at the MCC offices. For example, while we were settling into our B&B accommodation, Hotel Arrisate, in the town of Arrasate, Rosa, the proprietor, was downloading articles from her computer and loaning us books about Mondragon from her shelves.
Exploring the town, we met a Caja Kutxa (Coop Bank) worker-member who shared his thoughts with us on the controversial Fagor shutdown in 2013, affecting thousands and how it was, and continues to be, according to him, mismanaged. It would be glib to say even worker democracy isn’t infallible, and move on. But, Fagor does deserve a closer look for the lessons to be learned from this single most traumatic event in the Mondragon experience. Thus we are devoting a separate article to it and some other flashpoints, notably the 1974 Mondragon Strike.
Mondragon is the beating heart of Arrasate and everyone we met there had a connection with it and an opinion on it.
“Mondragon is not Heaven, and we are not Angels, “ Mikel is fond of saying, with a twinkle in his eye. Some commentators take this to be a cop-out, I take it that this is his way of granting a license to students of Mondragon to probe the problematics inherent in the project, to strive for a balanced, grounded, assessment of the Mondragon experience and, whether this model can be replicated outside the unique circumstances wherein it originated.
That’s what is being attempted in this series of articles.
Making Sense of Mondragon
First, I want to acknowledge the contribution to our understanding of Mondragon by J D Jenner’s paper – “Making Sense of Mondragon,” c. 2011 www.oldsouthhigh.com. passed on to us by “la dicha Rosa” in our Arrisate B&B.
It offered timely advice on the interpretation of data around the issue of the worker-member: non-worker member ratio across Mondragon, amongst
many other relevant issues.
As we saw in Part I, Mondragon Cooperative Corporation can be traced back to a small industrial cooperative set up in 1956/9, in the original “dirty old iron town” of Arrasate under the tutelage of a local priest, Don Jose Maria Arizmendiarrieta (more usually, and not disrespectfully, called, simply, Arizmendi – thank God.)
Then, the co-op involved no more than a couple of dozen people, including two females. The latest Annual Report to hand (2013) reports 74,000-odd in employment and Assets of Euro34 Billion. And between 40 and 50% female!
To be clear, not all who work in Mondragon are co-op “worker-members,” with all of the rights and entitlements of the full worker-member. Worker-member density is greatest in the Industrial sector and least in the Retail Sector, though that is being seriously addressed now, we learned: another example of the ongoing dialogue with “The 10 Founding Principles.”
According to those principles all, or most who work in Mondragon co-ops should be cooperativists but pressure to expand both at home and abroad rapidly, in order to survive in the highly competitive global market, has led to a democratic deficit as well as other undesired inequalities. And there are deeper and more pervasive influences at work, due to the rapid socio-economic, political and cultural changes in the Basque country, as well as in the wider world.
In Part One, we listed the hundred-odd of highly diversified co-ops organised in four main sectors: Finance, Industrial, Research and Knowledge. Many of these co-ops are at the cutting edge of their respective product and service activities, having obtained “preferred supplier status” from some of the most prestigious companies in the world and being highly rated in Customer-driven Total Quality and Environmental Management and have all the ISO 9000 series/ISO 14000, and the prestigious transnational EFQM certification to prove it.
Dave and I stopped off in Bilbao on the way to Mondragon and visited the iconic Guggenheim Museum. But how many know Mondragon co-ops were involved in its design and erection? Or, that the design itself represents the Basque people’s “very own and polished steel city” (to paraphrase Wesker) arising from the rust belt left behind by capitalists from an earlier era who’d moved on leaving the city to its own devices? And towering over the new Bilbao is the “Caja Kutxa,” the Mondragon co-op bank. Incidentally, we visited Guernica also, and stood beside The Liberty Tree, symbol of one of the oldest people’s democracies in Europe, a great source of pride to Basques, and, no question, directly in line with the Mondragon Experience of Workers’ Democracy.
Arrasate itself, 50 miles from Bilbao and Guernica, has grown from a run-down town of around 8,000 to a thriving, modern town with a core population of 23,000 plus – and, in the wider hinterland of the neighbouring valleys, even greater population growth. Many of the town’s domestic and commercial buildings were constructed by co-operative workers, thousands of dwellings are administered by co-ops also. It’s said some 50% of the town’s adults work in Mondragon co-ops.
The first Technical School, initiated by Arizmendi , is now a co-operatively -run University, with Engineering, Cooperative Business Studies, Management, enjoying high Spanish and international academic status. Mondragon co-ops run a wholly comprehensive education system, from pre-school upwards, with special status granted to the Basque language. And there is a large number of educational offshoots, including, particularly, technical colleges.
The original pioneering co-operators not only wanted to escape from the wage slavery and intellectual poverty of the town’s existing capitalist enterprises, they were driven by a vision of contributing to the development of the wider community. And, over 60 years an incredible amount of that social agenda has been delivered.
A slogan emerged in the course of the recent Scottish Referendum for independence from the UK: “We want a society, not just an economy.” That sums up the pioneering cooperators’ vision aptly. And isn’t it ironic that, as we saw in Part I, much of the inspiration for Arizmendi’s societal vision came from the Post-War British Labour Party? .
The Annual Report has headings such as : “Funds Earmarked for Activities with Social Content.” and, “Number of Students at Education Centres.”
Mondragon has endeavoured, from the beginning, to maintain a policy of transparency in its activities, and consultation with community organizations and political representatives regarding the wider social and political impact of its business activities.
The Mondragon Experience: an ongoing dialogue with the “10 Founding Principles”
The Ten Principles that evolved over the life of Mondragon, and were codified in 1987, after one tough year of fighting for its very survival, are presented here with the briefest comment.
- Open admission
(to all who agree with cooperativism, regardless of gender, race and politics – still relevant in what Jenner (op.cit) calls “the shape shifting politics of the Basque country.” (Incidentally, I found Paddy Woodworth’s book, “The Basque Country: A Cultural History,” 2007, a great help in getting a fix on the uniqueness of Basque history and culture and thus the cooperators’ background and context)
- Democratic organization
(Based on “one member, one vote”)
- Sovereignty of Labour
Renunciation of wage labour; maximizing worker-member control and ownership
- .4. Subordinate and practical nature of Capital:
(Capital is accumulated Labour and there to be used by Labour, not vice versa – as in conventional capitalist organizations)
- Participatory management
(Worker participation in the management function to the greatest practicable extent. Fullest information-disclosure. The on-going development of skills, knowledge and effective learning to be able to participate fully in the operational and strategic decision-making levels.)
- Payment Solidarity
(The lowest practicable differential between the pay of the highest-paid to the lowest: the founding fathers set the bar challengingly on this one: at 3:1. There’s been drift since, as we’ll see – with consequences)
- Inter-co-op cooperation
(Skills/knowledge exchange; supporting weaker co-ops with Labour and Capital transfers)
- Social transformation
As Arizmendi defined it: ”Cooperation is the authentic integration of people in the economic and social process that shapes a new social order; the cooperators must make this objective extend to all those that hunger and thirst for justice in the working world.” Quoted in Roy Morrison (“We Build the Road We Travel On,” New Society Publishers, 1991)
- 9. Universality
Not so much “Workers of the World Unite,” as, Solidarity with the workers of the world, especially the Third World.
The workplace must be transformed into a “Learning Organisation,” capable of anticipating societal and market change – and adapting and changing with it.
For me, the Alecop co-op is the epitome of Mondragon’s evolved approach to education. It began as a co-op combining productive work, in Alecop’s own workshops, or other co-ops, with education and technical training for young people who otherwise would not have access to education.
Go to the Alecop website now and see what it has become: a leading provider of educators, trainers, workplace education and training materials development specialists, and equipment manufacturers. Not including Basque, the site is available in 5 European languages.
Education is for life, so it must be comprehensive, rounded, democratically organized and delivered:
Arizmendi: “It has been said cooperativism is an economic movement that uses education . We can alter the definition, affirming that it is an educational movement that uses economic action.” Quoted in Roy Morrison (op. cit.)
To conclude this brief introduction to Mondragon’s 10 Principles:
those familiar with Organisational MVV Statements (“Mission, Vision, Values”), or who attended the “participative” brainstorming sessions to draw up MVVs – just go compare the substance, and application of the above with that of the organizations you work in, or have worked in. MVVs mostly turned out to be ”flavour of the month” fads, easily discarded by managements in the rush back to the trenches when the last crisis hit, from whence to launch the ongoing attack on, and roll back, the pay and working conditions previously achieved.
Roy Morrison, (op. cit) quotes a Mondragon cooperativist on The 10 Principles: “The reality of our cooperative practice differs somewhat from the formulation of the basic principles. But this difference constitutes a spur, a motivation to overcome the difference between the ideal and the possible, the desirable and the real.”
Participative Management and Democratic Organisation in Mondragon.
“Structure is a function of Purpose,” George Woodcock former British TUC Gen.Sec..
To become a worker-member with an equal share in the ownership and management of a co-op, a prospective worker-member has to serve three years as a temporary worker. Then, on the recommendation of his peers, and the payment of a capital sum, on average, the equivalent of a year’s salary, s/he can become a worker-member with concomitant ownership and management rights – and responsibilities. Mondragon places a heavy emphasis on the “rights and responsibilities” duality.
One of the functions of the Caja Kutxa (the Mondragon Bank) is to offer a prospective worker-member an “easy terms” loan to buy the stake in the co-op. Even so, not all workers aspire to the rights and responsibilities of Mondragon worker-membership or are able to commit to a longer term view of the payback on the initial investment.
We’ll revisit the worker-member/non member relationship later and share some of the opinions we gleaned at Mondragon – because it is an acknowledged issue there. It is seen by some commentators – and by some committed cooperativists in Mondragon – as a real threat to Mondragon’s future. As Arizmendi himself, in his day, put it rather starkly: “How can you have cooperatives without cooperativists?”
The organizational building blocks for co-ops were thought up in the 1956-9 period, under the tutelage of Arizmendi. They were based on local and international cooperative experience and honed into an organizational template by the incredibly prescient minds of Arizmendi and his original followers, or Apostles, as they were nicknamed.
There are six elements in the Mondragon co-operative “Management Chart:”
- General Assembly
- Governing Council
- Social Council
- Auditors’ Council
- Directors’ Council
- General Manager/CEO + Senior Managers
I use the word “elements” rather than “levels,” or “layers,” because the management structure is what is described as a “Flat” organization, not a “Hierarchical,” or, “Vertical” one. The decision-making authority doesn’t come “down” through layers of management and supervision, but is vested in the worker-members. How this works can be seen in the role description presented here:
The General Assembly
All worker-members attend the GA at least once yearly. All major decisions affecting the co-op are taken, or ratified, on the basis of “one member, one vote.” (“One member, one vote” applies equally to the senior managers and co-op officers.)
The General Assembly elects the Governing Council, The Social Council and the Auditors’ Council.
A General Assembly can be called by the Governing Council, or, by one third of the worker-members.
The Auditors’ Council (3 members) audits the books and acts as ‘‘watch-dog” over co-op financial procedures and decisions)
The Governing Council
The General Council is responsible for the day-to-day management of the co-op and appointing the General Manager/CEO and other senior managers. It meets at least monthly, and does its business, again, on the basis of “one member, one vote,” with the exception of the GM/CEO who may contribute to the discussion, but not vote
The Directors’ Council is intended to be “an informal advisory body” which meets monthly to review the business and formulate its response to developments in the co-op.
The Social Council
It is elected by the worker-members, via natural work-groups, teams or vocationally-based representative bodies. The Social Council is intended to scrutinize and approve the impact of business decisions on membership conditions, earnings, safety, health, welfare, etc.
It must be consulted by the Governing Council on these issues.
These structures have endured, with a little tweaking and changes in how these six basic elements are named, as will be seen in various books on the subject published over the years. And I am simply describing them here, rather than commenting on them; that will come later.
Noam Chomsky’s short video on Mondragon (Facebook), has questioned the degree and quality of worker-member participation in the Mondragon management function. So has Sharryn Kasmir, in her influential book, “The Myth of Mondragon,” State University of New York, 1996. I think they both have the wrong end of the stick.
I’d like to just say, that, from my own experience of 20 years working as a trainer and facilitator in Workplace Partnership, in Ireland, UK and Europe, both Chomsky and Kasmir, I believe, underestimate the transformative potential for Mondragon worker-members experiencing participative decision-making at the Strategic level, albeit via “indirect democracy.“ Particularly so when it occurs in combination with the direct democracy of, say, Self-Managed Teamworking, and even of much less autonomous forms of Teamworking, at the operational level. And the literature reports teamworking is practiced in most of the co-ops, beginning decades ago, in the heyday of the introduction of Total Quality management practices.
Finally, I would surmise, from the literature and conversations at Mondragon, there is a generous provision of education, training, and advisory support provided to worker-members to ensure they can function at all organizational levels. The alternative “Mushroom paradigm” of worker participation in management I have seen: “feed them plenty of manure and keep them in the dark.”
From what I’ve seen, heard and read I don’t believe that is the Mondragon way.
And, yes, I’m familiar with Michels, and accept a basic truth in his theory of “Oligarchy,” which argues that even the most democratically elected leaderships of organizations have an innate tendency to becoming self-perpetuating elites. (R. Michels, “Political Parties,” many editions) I don’t accept his suggestion that there is an inexorable, “Iron Law,” just the need for “eternal vigilance. And I don’t know of an organization that has as many checks and balances in place to contain the tendency towards managerial oligarchy as Mondragon.
But do I believe that it couldn’t happen in Mondragon? No. As the competition of the global market intensifies, and the “time to market” imperative puts even more of a squeeze on participative problem-solving and decision-making processes, the defence of Mondragon’s commitment to the principles of “Democratic Organisation “ and “Participative Management” will be severely tested. And I’d be very surprised if that organizational tension wasn’t already manifesting itself.
Ownership and Financial Participation Structures in Mondragon
First, the “health warning”: please note: the hundred-odd co-ops within Mondragon are autonomous businesses with the ultimate right to stay in, or leave Mondragon. The literature shows that a small number of co-ops have opted to leave, though the reasons are not clear to me as yet. I would suggest, the exiting co-ops are the exceptions that prove the rule: the majority recognize the value added to their co-ops through the Mondragon comprehensive support system.
This leads to the point that co-ops may negotiate with the Mondragon Corporation variations in the financial arrangements I am about to describe, depending on the exigencies of the co-op’s business. Thus you may come across different sets of figures and items presented in the literature. Here, a generalized “template” is used to provide a sense of the ownership structure.
In my view, looking at how surpluses are distributed between all the constituent parts of Mondragon – and the wider community – is the best way to understand how Mondragon works as a non-authoritarian, horizontal, coordinator and support for a collective of voluntarily affiliated co-ops with wider social commitments.
What is described here is a template based mainly on a Mikel Lezamiz lengthy interview with Amy Goodman (available on YouTube) and follow-on discussion between Dave, myself and Mikel during our visit. As a cross-check I used the excellent “Capital and the Debt Trap,” by Claudia Sanchez Bajo and Bruno Roelants, Palgrave Macmillan, 2013.
How the cooperatives’ surpluses are shared
Non-cooperative business surplus distribution is not included here. I have yet to come across data on this. It was one of those questions that only occurred to us after our visit. But we will have answers to this before the end of the series.
- Gross Surplus share-out:
|First 10%||Mondragon Investment Funds|
|–||to set up new co-ops|
|–||to set up new businesses.
Where business logic dictates, MCC may open an office or plant or retail outlet, recruit employees in the conventional commercial way, while taking a long term view of cooperativising the business – local socio-political and legal systems permitting.
|In the past, Gen. Mgrs/CEOs were sent from Mondragon Corporation. But as we saw during our visit, Mondragon is now switching to appointing local managers with a commitment to cooperativism.|
|40% of the cost of opening a new plant abroad is borne by the Mondragon Investment Fund.|
|60% is raised by the plant through the Caja Kutxa.|
|An interesting feature: Part of the Investment Fund goes to probing foreign markets for business opportunities, Strategic M&A (Mergers and Acquisitions) to continuously and pro-actively tweak the Supplier—Mondragon business unit—Customer chain to gain and maintain Competitive Advantage.|
|?||Until plants are fully “incorporated” into the Mondragon Corporation as affiliated co-ops I imagine their surpluses would be lodged in the Investment Funds.|
|This constitutes an investment in the next generation of Mondragon cooperative leaders,|
|As well, an investment in the intellectual capital of the wider society, and indirectly the global cooperative movement, via the admission to the University of a substantial body of international students, researchers and teachers.|
|2013 Annual report gives the number of students at Education Centres as 11,400 Technology centres. (See Part I for details)|
|To fund losses/cash flow shortfalls in the coops (+Tax and other Local and Central Government debts)|
|2.||Net Surplus share-out:|
|10%||Community and Education|
|The actual distribution is democratically decided by the community organisations|
|45%||Individual Co-op’s investment reserve fund|
|45%||To the worker-members|
|Not as pay or dividends, but capitalised, it becomes a source of investment for the co-op and is based on the member’s hours worked/skills acquisition/re-location, etc. – a transparent but complex formula to insure fairness in reward and recognition of the individual contribution to the value added to a co-op’s product or service. This is recouped on retirement or early leaving according to democratically agreed co-op rules|
|2013 Annual Report:
Worker-Members’ Share Capital = Euro1.7 Billion across Mondragon.
Thus, 90% of the net surplus is re-invested to create and maintain optimal levels of employment in the co-ops. In times of severe adverse market conditions pay due to workers for voluntarily accepted pay cuts, overtime worked and other sacrifices made, are similarly capitalised for deferred payment, thus reducing the threat of layoffs, as well as helping to consolidate the business.
To conclude Part Two:
We’ve looked at Mondragon’s “10 Principles,” at its participative managerial and financial structures and revisited the background history and social context of Mondragon.
We began by citing George Woodcock’s “Structure is a function of Purpose.” He coined that with regard to his attempt to reposition the TUC to be more relevant to the Britain of his day.
The Mondragon pioneers were clear, and united, on their Purpose. Thus the structures they began to put in place from the early 1950s have stood the test of time – and at least three major periods of external economic crises, mostly, if not completely, unscathed.
The 10 Principles, which comprehensively and succinctly define the Purpose, have been described as the glue that holds the highly diversified, and autonomous, co-ops together.
“Mondragon’s history would have been impossible without a way of being, of performing, of doing specific and differentiated things, that is, a self-culture, ” the official history reads. (MCC, 2000)
(Quoted in I B Markaida, in Bakaikoa and Albizu (eds), “Basque Cooperativism,” Univ. of Nevada/Univ of the Basque Country, 2011.)
Markaida adds: “..the10 Principles are the best embodiment of this self-culture… that… constitute the cornerstone, the starting point of (Mondragon’s) ideological construction.”
In a future issue:
Part three: Identifying the factors in the Competitive Advantage of the Mondragon cooperative model over conventional capitalist companies.”