Spain's astonishing co-op takes on the world
As Britain’s David Cameron embraces the ideal of worker co-operatives, a remarkable hi-tech variant with global operations is already thriving in the industrial heartland of Northern Spain.
By Ambrose Evans-Pritchard, Telegraph.UK
International Business Editor in Mondragon, Spain
9:09PM GMT 16 Feb 2011
The Mondragon Corporacion is the world’s biggest co-op with 85,000 'worker-owners’, though the Basque group is better known for products such as Orbea bikes that won gold at the Beijing Olympics and sell for up to £11,000, or Fagur fridges, Brandt ovens, Eroski shops, or the coming electric City Car.
Anglo-Saxon elites might find its pay scale unsettling. Top brass in Mondragon’s mountain lair may not earn more than six times the lowliest cleaner. "In reality it is just three times after tax, but we don’t need much money to live here," said an ascetic Josu Ugarte Arregui, the global director.
The differential in big Western companies can be 400 times, and is getting worse. The top pay of FTSE 100 bosses has jumped from 124 times the minimum wage to 202 times over the last decade, according to the Hutton Review of Fair Pay.
Mr Ugarte struggled to explain how the group keeps talent. High flyers seem to stay for reasons of tribal loyalty or the ideals of Catholic social doctrine. To be a Mondragon manager is to accept the vows of priesthood, and indeed the movement was founded by a parish priest, Jose Maria Arizmendiarreta.
His mission was to lift youths in the hilly Alto Deba region out of poverty after the Civil War, when Basques were on the losing side and a particular target of General Franco’s wrath. Nearby Guernica – flattened in 1937 by the Condor Legion, and seared in our collective mind by Picasso – holds the ancient oak tree and symbol of the Basque nation.
The solidarity ethos has its allure given mounting research by the IMF and other bodies that the extreme gap between rich and poor was a key cause of the global asset bubble and financial crisis, as well as being highly corrosive for democracies. The GINI index of income inequality has reached levels not seen since the 1920s across the West.
Mondragon weathered the 2009 slump in machine tools, car components, and its other cyclical niches by putting 20pc of full staff leave for a year at 80pc pay, with names chosen by lottery. Some of its 256 co-ops froze pay, others took a 10pc cut.
The membership rule is that all new workers must put up €13,400 in share capital, which they can borrow from the group’s Caja Laboral, one of the few Spanish savings banks in robust health.
Profits are largely reinvested or sunk into research centres, though a chunk is spent on social projects. Worker dividends are paid into retirement accounts. The whole system is run by an elected Congress, known as "the supreme expression of sovereignty".
A Capitalism alternative? The Mondragon Cooperatives with Professor Fred Freundlich [01/01]
Such an egalitarian venture creates all kinds of problems. "We can’t offshore, so we have to keep climbing the technology ladder and improve core engineering here," said Mr Ugarte.
The group is stepping up investment in thermal insulation, and water purification, and grinding machines for the aerospace industry. Its machine tool arm Danobat has bought Newall in Peterborough.
If a co-op keeps losing money, it is given three years to come up a credible plan, but ultimately workers have to be retrained and found other work. Paid-up 'Co-operativitistas' cannot easily be fired. The wider headcount fell by 7,000 during the crisis, but they were outsiders in building.
So far none of Mondragon’s plants in China, India, Latin America or the rest of Europe have opted for co-op status. "We encourage them to be owners of their future, but they are afraid of the obligations that go with it," said Mr Ugarte.
Mondragon pays global staff the market wage, which creates an odd disparity with the Spanish mother company. Mr Ugarte said the net effect of overseas expansion has boosted jobs at home, still 84pc of the total.
America’s United Steelworkers has sought help from Mondragon in creating its co-ops, hoping to emancipate itself from a Wall Street that "hollows out companies by draining their cash and shuttering plants". Yet it is unclear whether the model can easily be exported.
Mondragon Business Model
Mondragon’s strength comes from the powerful clan ethos of the Basques, the oldest nation in Europe with a tightknit global diaspora (Nevada, Idaho, Argentina, Brazil) and a unique pre-historical language. Linguists doubt claims that Basque is linked to old Etruscan or Berber dialects.
Recent studies of DNA suggest that the Basque have a very close genetic profile to the Irish and Welsh, who also pre-dated the Celtic agrarian settlements of the 6th Century BC.
There is a dark side to Mondragon. The town is a cauldron of ETA terrorist sympathies. A socialist politician was gunned down in broad daylight two years ago, and the mayor has still declined to condemn the act. The Corporacion adamantly denies any links to ETA, insisting that it is "radically opposed to intolerance and any type of violence". There is now hope of a lasting peace settlement in any case.
"The Myth of Mondragon", based on fieldwork by anthropologist Sharryn Kasmir, argues that political tourists from all over the world have been willing to overlook the subtle forms of peer pressure and worker stress in the valley.
Yet the movement is still flourishing half a century after critics said it would never survive. It generates 3pc of Spain's industrial output of the Basque region and generates annual sales of €24bn. Almost 60pc of its heavy production is exported.
As chairman Jose Maria Aldecoa puts it, with a Churchillian twist: "the co-operative model is absolutely flawed, but it has shown itself the least flawed in a crisis of values and models".
» » » » [Telegraph.UK]
Mondragon Co-Operativism: The Co-Operative Experience
MONDRAGON Corporation is the embodiment of the co-operative movement that began in 1956, the year that witnessed the creation of the first industrial cooperative in Mondragón in the province of Gipuzkoa; its business philosophy is contained in its Corporate Values:
- Social Responsibility.
The Corporation’s Mission combines the core goals of a business organisation competing on international markets with the use of democratic methods in its business organisation, the creation of jobs, the human and professional development of its workers and a pledge to development with its social environment.
In terms of organisation, it is divided into four areas: Finance, Industry, Distribution and Knowledge, and is today the foremost Basque business group and the seventh largest in Spain.
The MONDRAGON Corporation is divided into four main areas: Finance, Industry, Retail and Knowledge and is today the top Basque business group and the seventh biggest in Spain. Its basic social and management bodies are the Co-operative Congress, the Standing Committee and the General Council.
Co-Operativism: Co-Operative Experience"The present, however splendid it may be, bears the seeds of its own ruin if it becomes separated from the future."
"Nothing differentiates people as much as their respective attitudes to the circumstances in which they live. Those who opt to make history and change the course of events themselves have an advantage over those who decide to wait passively for the results of the change."
-- José María Arizmendiarrieta (Ideologist and driving force behind the Mondragón Co-operative Experience)
The local environment
Like other human communities, throughout its history Basque society has engaged in many different economic activities within the field of co-operation. One example of such activities is the carrying out of occasional neighbourhood or community tasks, known in the Basque language as Hauzo Lan and often linked to agricultural work. In some cases, such community activities eventually developed into official institutions such fishing guilds or community land use organisations, which played an important role in the Basque economy.
Logically, the advent of the industrial revolution considerably reduced the importance of such practices and institutions, although at the same time it brought with it new examples of economic activities carried out according to the principles of co-operation; such activities included the Consumer Co-operatives, which arose very early on in the Gran Bilbao region, and the Industrial Production Co-operatives such as Eibarresa Alfa, which were inspired by socialist ideals.
However, both the practical experiences and theoretical work underway were interrupted by the outbreak of the Spanish Civil War, which seriously undermined all the progress made in this field and plunged the Basque Country into a severe economic and social depression.
José María Arizmendiarrieta
It was against this backdrop that José María Arizmendiarrieta, a young priest born in Marquina in the province of Vizcaya, arrived in Mondragón in 1941.
A highly pragmatic and hard-working man, José María was to be the driving force behind the Mondragón Co-operative Experience, serving as an exemplary role model for all co-operative members until his death in 1976.
The First Steps
In 1943, José María set up the Polytechnic School, now known as the Mondragón Eskola Politeknikoa, a democratically administered educational centre open to all young people in the region. Mondragón Eskola Politeknikoa was to play a decisive role in the emergence and subsequent development of the Co-operative Experience.
In 1956, five young people from this school established, in Mondragón, the first production initiative of what today is MCC: ULGOR (now Fagor Electrodomésticos), which during its early years focused on the manufacture of petrol-based heaters and cookers.
ULGOR, Arrasate ( Fagor Arrasate) and what is now Eroski were set up in the area during the final years of the 1950s. Motivated by a common spirit, it was these co-operatives that in 1959, the same year as the publication of the Stabilisation Plan, founded the Caja Laboral Popular credit co-operative, a true co-operative bank which was to prove a key element in the future of the co-operatives encompassed within the Mondragón Experience.
The following years saw the birth of a large number of co-operatives. It was during this period that Fagor Electrónica, Fagor Ederlan and Danobat (among others) were set up, along with the Business Division of Caja Laboral which was to serve as a seed bed for companies and a key element in the subsequent evolution of MCC.
During the seventies, a number of new co-operatives were set up and existing co-operatives consolidated. Much progress was also made in the field of research and development, with the creation of the Ikerlan Centre for Technological Research.
The eighties were mainly characterised by the development of the Mondragón Co-operative Corporation (MCC) in response to the challenge posed by the creation of the European Economic Community and the globalisation of the economy. The co-operatives, which were formerly grouped according to region and geographical location, were restructured into sectors in accordance with their production activities.
During the nineteen nineties, prompted by MCC, the University of Mondragón was set up as a private university aimed at satisfying the needs of local companies. Similarly, it was during this period that the group’s turnover increased spectacularly, mainly due to a concerted effort in the field of internationalisation. Currently, MCC has 38 industrial plants abroad, and this figure is expected to rise to 60 plants by the year 2005.
Today, almost half a century after its foundation, the Mondragón Co-operative Corporation is the largest business corporation in the Basque Country and the seventh largest in Spain, as regards both sales and workforce.
- Do you consider co-operativism to be an alternative to the capitalist production system?
We have no pretensions in this area. We simply believe that we have developed a way of making companies more human and participatory. It is an approach that, furthermore, fits in well with the latest and most advanced management models, which tend to place more value on workers themselves as the principal asset and source of competitive advantage of modern companies.
- How do the MONDRAGON co-operatives contribute to a fairer distribution of wealth?
If we focus solely on the town of Mondragón and the Alto Deba region in general, an area with a high concentration of co-operative activity, we see that recent European reports place this area at the top of the Spanish per capita income scale, alongside San Sebastián and its surrounding area.
It is also here that, as the Basque media has pointed out over recent years, ‘economic development is greater and the distribution of wealth fairer’. This observation is based on the report compiled by the Inland Revenue in light of the annual tax returns filed by the inhabitants of Gipuzkoa. These reports underline the ‘uniqueness’ of the municipalities which make up the Alto Deba region, which itself ‘boasts an outstanding model of fairer economic development’.
We should remember that it is in Gipuzkoa that the most intensive co-operative activity is based where our co-operatives contribute 8% of the total GDP of this Basque province, and 17% of the industrial GDP. They also provide 7% of all jobs and 16% of jobs within the industrial sector, as well as accounting for 26% of all industrial exports.
- Does MONDRAGON continue to maintain its co-operative identity, even after all these years and despite the effects of globalisation and a predominance of individualistic values?
During an interview with a Basque media group, the co-founder of the MONDRAGON Experience, ex-director of Caja Laboral and ex-president of the Group, José María Ormaechea, did not hesitate to respond to a similar question by insisting that ‘the MONDRAGON Experience continues to maintain the basic elements of its identity’.
In this sense, Ormaechea drew attention to the fact that the fundamental pillars which have always characterised the Experience (education, work and solidarity) continue to play a key role in our co-operatives, alongside the concept of the people-oriented company and its mechanisms of participation and solidarity; although he also said that they may require ‘a renewal process designed to identify new possibilities’ after almost 50 years of operation.
As regards globalisation, Ormaechea highlighted the fact that the purchase and setting up of capital companies is a requirement demanded by the internationalisation process and by the fact that the MONDRAGON co-operatives focus their activities on products such as automotive parts, domestic appliances and machine tools, which need to expand abroad in order to survive on today’s market. In this process of expansion, capital can move from place to place with ease. Not so co-operative workers, who required fertile ground in which to prosper.
In light of the increase in non-member employees, the Corporation has opted to create formulas which will enable their participation in the ownership and management of the public limited companies in which they work.
- Can co-operative or social projects in other countries, such as, for example, Latin America, have access to MONDRAGON’s funding programmes?
Access to our funding mechanisms is, logically, restricted to our members. However, we also support the work of Mundukide, an organisation set up by a number of retired MONDRAGON managers which aims to foster and subsidise social projects in developing countries.
The work carried out by our bank, Caja Laboral, is basically the same as that carried out by any financial institution, although over the years it has paid particular attention to projects of a co-operative and social nature. Its principal area of activity is the Basque Country, although in recent years it has expanded to other parts of Spain, although not yet abroad. It is not then, at present, a financial institution which somebody in, say, Latin America could approach to request funding for a co-operative or social project.
- What type of schemes involving community action does MONDRAGON pursue?
Since its very beginnings, the MONDRAGON Cooperative Experience has been characterised by its commitment to solidarity and social responsibility towards its environment, with this being one of its defining traits. This solidarity is revealed, in the first place, in a significant contribution to the wellbeing and enhancement of the quality of life of the communities that host our companies: creating direct jobs, generating induced employment in other firms and fostering a diversified business fabric.
Additionally, the MONDRAGON Cooperatives invest around 10% of their profit in socially-oriented activities each year, and this is channelled through the Cooperative Education and Promotion Fund. In 2008 the Fund reached 35.3 million euros, and 142 million euros over the four-year period 2005-2008.
The breakdown of the 35.3 million euros earmarked for backing socially-oriented activities in 2008 is as follows:
- Projects in training and education: 10.4 million euros, channelled into higher education, professional training and general education.
- Promoting cultural activities: 2.2 million euros.
- Research and development projects: 7.8 million euros.
- Promoting the use of the Basque language and other minority languages: 1.7 million euros.
- Care schemes (programmes in support of the disabled, caring for the elderly, reinsertion of substance abusers, etc.) and backing for the activities of NGOs and development projects in emerging economies: 6.3 million euros.
- Other activities: 6.9 million euros
» » » » [Mondragon Corporation]