Summary: Mondragon Corporation is a large corporation in Spain’s Basque country. It is comprised of a network of worker managed co-operatives. It has assets of over $40 billion US and has in excess of 85,000 member employees. The Mondragon model is different to the employee share ownership schemes sometimes promoted in Australia. It is not a model that provides employees with some token shares to increase their identification with a corporate structure that continues to be organised on anti-democratic and hierarchical lines. It is a model in which workers have real ownership and are responsible for key strategic decisions within each co-operative and the overall enterprise. And it is a model in which the power of management to hire and fire workers is reversed. Instead workers engage management. The profit motive is not eliminated from the Mondragon model. Neither is a commitment to research and innovation. Wage inequality is not eliminated but it is deeply compressed. And the co-operative model delivers a very high level of job security in a country that is still suffering very high levels of unemployment.
There is a better way to organise production
Mondragon is a town in the Basque country in the Northern part of Spain. The Spanish civil war 1936-39 devastated Spain and the economy remained depressed during the Second World War.
In 1941 a young Catholic priest, Jose Arizmendiarreta, arrived in Mondragon, which then had a population of 7,000 people who were contending with poverty, hunger, exile and tension.
In 1943, Arizmendiarrieta established a technical college that became a training ground for generations of managers, engineers and skilled labour for local companies, and primarily for co-operatives. Arizmendiarrieta requested a large local company for workers from the college to be able to participate in management. After this request was rejected, he organised engineer graduates from the technical school to set up a co-operative.
Today the co-operatives have joined together in Mondragon Corporation. Overall the corporation has 85,000 members and 20,000 non member employees working in 120 different co-operative enterprises. Often an individual co-operative will be quite small although some, such as Mondragon’s supermarket chain, are large.
The 85,000 member employees are the owners, operators and decision makers of the enterprise. About 46% are females. The corporation has schools with around 9,000 students and a university with over 3,500 students. The corporation engages in manufacturing, banking and operates a supermarket chain, high tech research and development laboratories. The corporation is export orientated selling more outside Spain than inside it. Its major external market is Europe but it exports to 140 countries. Mondragon is the largest corporation in the Basque territory and is one of the top ten largest corporations in Spain.
The corporation has assets of over $40 billion US. It owns 716 patents on various products. Seventy seven of its co-operative enterprises operate outside of Span including in the USA, China and India. Eraski, the Mondragon supermarket chain, employs 42,000 workers, roughly half the total number of employees.
In the Mondragon University much of the curriculum specializes in how to start and run a co-operative business. Students can do a MBA in how to run a co-operative.
Each co-operative runs its own enterprise. The supreme decision making body within each co-operative is the general assembly. All of the member employees meet once a year. In most enterprises this is all of the people. In some co-operatives there are also non-member employees. But only members can attend the general assembly.
The general assembly decides whether to hire or keep the general manager- or CEO, as well as departmental managers. The process of hiring and firing is the reverse of the typical capitalist enterprise. Member employees hire management rather than management hiring employees.
All member employees attend preparatory meetings (during paid time). Here they are provided with the information required for informed decisions to be made at the general assembly. This is the same sort of information as would be given to a Board of Directors within a typical capitalist enterprise; reports on the enterprises performance, profits, as well as evaluation of the performance of managers.
The general assembly decides the basic directions for the enterprise. For example, decisions as to what will be produced and the technology that will be used to produce it.
Co-ops can buy production of other co-ops as an input. But there are no preferential procurement policies in terms of acquiring technological inputs from other co-operatives within the Mondragon enterprise. Each co-operative is expected to obtain inputs that represent the best value for money.
Nevertheless there is co-operation and co-ordination between co-operative enterprises within the Mondragon group. There is a rule prohibiting competition between co-operatives.
Early on in its history, the various general assemblies within Mondragon made decisions on how co-ordination between co-operatives would function. 10% of the net revenue is withdrawn from each co-operative and is put into a central fund for co-ordination of the overall enterprise. 45% of the net revenue of every enterprise is left to the enterprise itself to build its co-operative. The last 45% of the net revenue is distributed to all the members. But distribution occurs through the worker being credited with his or her share of the 45% revenue. This is put into a fund and is the basis for the pension when the worker retires. Mondragon pensioners get the national pension that all Spaniards get plus the pension from Mondragon.
In addition member employees get an annual bonus of 7% of the accumulation of pension. The pension fund is an immense fund to finance capital for research, innovation and the university.
All these decisions are made by the general assembly in which all member workers can participate. Decisions can be changed at any time.
In most of the co-operative enterprises the highest paid person is not permitted to earn more than 4.5 times the pay of the lowest paid. There are some exceptions where the gap can go to 6.5 times. But this contrasts with 300 or 400 times the pay of executives in large corporations in the USA. Inequality is not eliminated but is substantially compressed by virtue of this wages policy.
The general assemblies have also decided that job security is an overriding priority. If there is no more social need for a certain kind of work due to loss of markets for certain product lines, an elaborate points system comes into operation. Every worker is allotted points depending on age, skills, family circumstances, income level, length of service etc. Then if there is a need for redundancy a menu of options is given to each worker in accordance with their points.
Workers made redundant have either gone onto pensions or been moved to other co-operatives within the overall enterprise. This has meant nobody has had to be laid off for years. Mondragon workers have been largely insulated from the effects of high unemployment in Spain. During the financial crisis 250 people were relocated into other co-op’s. One of the larger and older co-operatives, Fagor domestic appliances, suffered a downturn and some of its workers were transferred to work into other co-ops. Cash liquidity passed from some co-operatives to others, despite lack of liquidity from banks being available to other businesses in the general Spanish economy.
Mondragon’s bank, Casa Laboral, has about 18 million Euros in deposits and about 17 billon Euros lent out. This is rare. Usually banks lend out more than the amount of their deposits. Casa Laboral has a very conservative approach to banking.
The biggest problem is how to deal with the 20,000 employees who are not co-op members. Non-member employees are engaged in part because there is a probation period for membership. They have problems with workers outside Spain who have a different culture and want to be told what to do.