Mondragon, a cooperative in Spain

New Economics pays due homage to and draws inspiration from almost two centuries of experience in the cooperative movement. Throughout the 19th century, cooperatives emerged in many fields – agriculture, industry, services and more across Europe. In 1895, this momentum led to the formation of the International Cooperatives Alliance (ICA) in London. The fundamental premise of the cooperative movement is a faith in people’s natural capacity to improve themselves economically and socially through mutual self-help in democratically- controlled economic organizations.

The Mondragon cooperatives in Spain’s Basque region are perhaps the most famous example of democratic worker-owner industrial enterprises that have continued to grow and thrive for almost 50 years. These cooperatives were initiated soon after World War II by a young priest named Don Jose Maria Arizmendiaretta. Due to acute poverty in this region, most of the youth were migrating in search of livelihood. Don Jose Maria was convinced that it was possible to make a success of a humanistic cooperative business within the capitalist world.

It all began with the creation of a technical school and later a small stove factory. In order to raise capital for the business, this team established a cooperative bank – the Caja Laboral Popular - which sought the savings of local people. The founders of the new bank appealed to the Basque people by saying that here was a way to build local industry and keep the youth at home.

The stove factory was the beginning of a string of worker-owned industrial units and services spread across the region. The profits from these cooperatives are partly enjoyed by individual worker-owners; some profit flows into a capital fund and some into social funds that provide community benefits. The trade school eventually grew into a polytechnic institute offering high-tech training. The Mondragon network now includes high-tech industrial firms, agricultural networks, schools, a university, retail stores, housing complexes, a cooperative bank, research and development institutes, and a co-op that provides welfare benefits. The Mondragon cooperatives aim to balance interests at many levels – for example, the individual with the community, the particular co-op with the whole co-op system, the human interests of workers with the necessities of the market, the industrial process with the environment.

By the late 1990s, the Caja Laboral Popular had become a large bank with hundreds of branches and assets of almost $10 billion. The Mondragon cooperatives have combined sales of over $10 billion and combined staff of more than 26,000 persons. In the late 1990s these units reorganized themselves as the Mondragon Cooperative Corporation (MCC) that is now among the largest and most successful Spanish firms competing in the European Union.

The MCC describes itself as a business-based socio-economic initiative “created for and by people and inspired by the Basic Principles of our Co-operative Experience. It is firmly committed to the environment, competitive improvement and customer satisfaction in order to generate wealth in society through business development and the creation of, preferably co-operative, employment.” In 2002, the MCC led the process of setting up the European Association of Cooperative Groups (ECG) - which facilitates transmission of know-how between European co-operative groups.

Roy Morrison’s book on Mondragon We Build the Road as We Travel shows how worker co-ops have a key role in the global transition away from hierarchical and ecologically destructive economic structures. Naturally, the MCC is far from ideal and struggles with many of the ecological and social problems that afflict industrial society the world over. According to some observers, the MCC is now more a corporation than a cooperative. Nevertheless it is still widely lauded as a great success in balancing egalitarian theory with effective and sustainable practice. As Morrison writes in summing up the inspiration of Mondragon, it helps us to go beyond the spinning of utopian webs. It helps to “clarify and explain what is already in process, what is implicit in a complex reality…”

Mark Lutz, on how the democratic structure of the Mondragon cooperatives functions, writes:

“The members ultimately have control over the firm. They meet in an annual general assembly and elect their officers who then hire a team of managers. Each member has a membership certificate that entitles him or her to a vote in the general assembly and a share of the annual profits (or losses). There are no shares in this corporation, instead, each member worker has an individualized capital account into which every year retained earnings are credited by a formula based on pay that tries to reflect the relative productive contribution of each worker. Through this formula most of the profits are reinvested; however, they do not belong to the corporation but are equivalent to long-term loans by the workers themselves. The overall moneys in these accounts trace the net asset value of the MCC. When the worker retires, he or she is cashed out of what amounts to the reinvested fruit of their labors as long as the worker had been active. The departing worker is replaced by a new member, at least under normal conditions, who then opens a new account in his or her name.”

“The Mondragon cooperatives, no matter how successful or unsuccessful, are not for sale. Outsiders cannot buy ownership or control, which shields management’s ability to be socially responsible and to function with the long-run interest of the community in mind, as for example, to pursue a policy of job growth.”

“The last chapter in the Mondragon success story still needs to be written. So, for example, it is not clear how well the cooperative will be able to compete with products made in low-wage, offshore plants and sold by its rival transnational corporations. It could also be argued that due to the internal accounts, workers incur a greater risk; they are putting all their eggs into one basket. But, consider that because the Mondragon cooperatives are associated in a number of regional groups, they are highly diversified. ‘Instead of a worker diversifying his or her capital in six companies,’ D. Ellerman explains, ‘six companies partially pool their profits in a group or federation and accomplish the same risk-reduction purpose without transferable equity capital.’” [Ellerman, “The Corporation as a Democratic Social Institution” in Social Economics: Retrospect and Prospect, ed. M.A.Lutz, Boston, MA, Kluwer Academic Publishers, 1990].