In May 2013, four Seattle peace and justice activists got a chance to visit Mondragon, the place where the largest and most successful group of producer cooperatives in the world began. Mondragon (“dragon mountain”) is the old Spanish name of a very small town in the middle of the Basque country, a lush green region in northern Spain. When thinking of Mondragon, think three-in-one. They are not just a group of producer cooperatives; they are a number of schools, research laboratories and a credit union. Think school, factory and credit union.
A short history of the group would follow the same three-in-one theme. Father Arizmendiarrieta (Arizmendi for short), the priest who was the guiding spirit of Mondragon, started a trade school for poor kids in 1943. The first cooperative factory was started by five of his students in 1956, and in 1959 the Caha Laboral, a worker’s credit union, was founded. Father Arizmendi thought that most cooperatives had failed in the past because the worker-owners did not have enough skill and knowledge to compete in the marketplace. Schools and research labs helped deal with that problem. A second barrier to success for cooperatives was lack of access to capital. The credit union solved the liquidity problem for the Mondragon cooperatives in the early years.
By the beginning of the twentieth century the consensus among social scientists was that producer co-ops are not a viable alternative to capitalism. There was always one of two ways they failed:
- They fail as businesses. They cannot sell enough of what they produce to cover their costs. Or,
- They fail as cooperatives, i.e. they lose their egalitarian and democratic character. Many become privately controlled companies of the first generation of worker-owners who hire more and more workers who do not become owners.
The Mondragon group is 57 years old, more than several generations. They did almost 15 billion Euros in sales in 2012, 4.5 billion in exports. They had 83,500 full-time workers in 2012, 85% are full worker-owners. Many of the industrial co-ops produce for highly technical markets.
Usually a worker is asked to become an owner after a probationary period of a year. They borrow the money or have it taken out of their paycheck over several years. There can be no discrimination in hiring or in buying in. As an owner they take part in the General Assembly that meets at least once a year and elects the Governing Council, which is the equivalent to a Board of Directors. The Governing Council hires the General Manager for a term limit, such as 4 years. The workers are the owners. It is the managers who are hired and they can be fired. The unemployment rate in the Mondragon valley and all around the Basque region where Mondragon co-ops are located is very low compared to the rest of Spain.
The co-ops do not issue “shares” that anyone outside the cooperative can own. Each worker-owner has one share and one vote in all the assemblies. Father Arizmendi thought that Rochdale in England, considered the birthplace of the modern cooperative movement, made the mistake of allowing worker-owners to sell shares to outside interests. All the by-laws of Mondragon co-ops prohibit that.
Mondragon Cooperative Corporation is the umbrella organization of 111 separate cooperatives, 143 subsidiary companies and a few other entities. The co-ops are different sizes, some 200 worker-owners, some 2,000 worker-owners. All have different by-laws but with the same basic governing structure. The Mondragon Cooperative Corporation (MCC) was founded in 1992 after a long series of General Assembly meetings. Today it is the vehicle through which all the Mondragon cooperatives cooperate.
At the same meetings of the General Assemblies that decided to form the MCC, the managers and engineers put forward a proposal to change the pay differential from 1 to 4.5 to 1 to 9. That proposal lost. Today throughout all the co-ops, the average remains 1 to 4.5. By contrast, the average pay differential of large American corporations is 1 to 359! The valley in which Mondragon sits has the lowest wealth gap in all of Spain.
What is the meaning of Mondragon? We were visiting as have hundreds of other activists as well as business managers and academics to see if what we have read about Mondragon is really true. I came away a believer. So did Carl Davidson who visited in 2010. He wrote a review of five books about Mondragon, in which he quotes David Schweikart: “An efficient and economically dynamic sector can flourish without capitalists. Capitalists do not manage the Mondragon cooperatives. Capitalists do not provide entrepreneurial talent. Capitalists do not supply the capital for the development of new enterprises or the expansion of existing ones. But these three functions –managing enterprises, engaging in entrepreneurial activities, and supplying capital – are the only functions the capitalist class has ever performed. The Mondragon record strongly suggests that we don’t need capitalists anymore.” The hard part will be to figure out how we in the United States can get there from here.
Originally published at Rethinking Prosperity.