Mondragon Cooperatives and 21st Century Socialism: A Review of Five Books with Radical Critiques and New Ideas

Worker-owner in Mondragon factory

This article is a review of five books on the Mondragon Cooperatives spanning several decades, not only to offer short critiques of their contents, but to use them as a starting point to bring Mondragon up to date and summarize its core philosophy in a way that helps the cooperative movement, and the wider socialist movement as well.

The article is also full of interesting discussions held during a study tour in Mondragon in September of 2010. Keywords: Mondragon, cooperatives, worker ownership, worker control, Basque Country, socialism, Marxism, Robert Owen, Father Jose Maria Arizmendiarretta,  solidarity economy

By Carl Davidson

Solidarity Economy Network

September, 2010 - Something important for both socialist theory and working-class alternatives has been steadily growing in Spain’s Basque country over the past fifty years, and is now spreading slowly across Spain, Europe and the rest of the globe.

It is an experiment, at once radical and practical, in how the working-class can become the masters of their workplaces and surrounding communities, growing steadily and successfully competing with the capitalism of the old order and laying the foundations of something new—it is known as the Mondragon Cooperative Corporation (MCC). Just what that ‘something new’ adds up to is often contested. Some see the experiment as a major new advance in a centuries-old cooperative tradition, while a few go further and see it as a contribution to a new socialism for our time. A few others see it both as a clever renewing of capitalism and as a reformist diversion likely to fail. Still others see it as a ‘third way’ full of utopian promise simply to be replicated anywhere in whatever way makes sense to those concerned.

The reality of an experiment on the scale on Mondragon, involving more than one hundred thousand workers in one hundred and twenty core industrial, service and educational coops, is necessarily complex. It can contain all these features contending within itself at once. That is what makes MCC a fascinating story where the final chapters are still being written. But one thing is clear: it continues to grow and provide a quality of life for a participant that is unique in its moral benefits and above average in its material standards. Hardly any concerned would give up their position in the project today for the options of the society around them, even if they are skeptical or dubious about various aspects of MCC’s current practices or future prospects.

One MCC worker, for example, recently expressed some cynicism about the coops. “People once took them seriously, but not anymore,” she remarked. “You mean it doesn’t matter to you whether you work here or at a private company?” she was asked. “Of course, it matters,” she replied. “Here, I have job security, and here, I can vote.”

If I had to single out one of the five books to tell MCC’s story, it would be From Mondragon to America by Greg MacLeod (1997), even if its title is a little misleading and its facts fifteen years out of date. The reason? It goes deeply into the structures and values at the core of MCC, as well as discussing the philosophical thinking of its founder, Father Jose Maria Arizmendiarrieta, or known more simply as Father Arizmendi.

A Priest with a Philosophy

The story of Mondragon begins with Father Arizmendi’s arrival in the Basque country of Spain in 1941 following the defeat of the Republicans in the Spanish Civil War. The Basques had been a center of resistance to Franco, and the area was devastated by the conflict. Most widely known was the bombing of the Basque city of Guernica immortalized in the mural masterpiece painted by Pablo Picasso. Father Arizmendi himself had fought with the Republicans, was imprisoned, and barely escaped execution. As a young priest, he was assigned to the Arrasate-Mondragon region, which was suffering from high unemployment and other destruction in the war’s aftermath. Arrasate is the Basque name for the area, while Mondragon is the Spanish name. In any case, the industrial mountain valley received little or no help from the Franco regime and was the target of ongoing repression against the Basques, with the fascists trying to stamp out their language and culture as well as their political organizations.

In reorganizing his new parish, Arizmendi thus had to find a way for the Basques to help themselves. He started by forming a small technical school and helped finance his efforts by convincing the local Basques with meager funds to form a small credit union. He also formed sports and other family-related organizations that could still allow people to gather under the legal restrictions of the fascists.

In addition to being an organizer, Arizmendi was also a deep-thinking intellectual—all the while, he was doing a thorough study of Catholic social theory, Marx’s political economy, and the cooperative theories of Robert Owen, the British utopian socialist. Armed with these ideas, in a few years he selected five graduating students from his technical school and with donations and borrowed funds from the credit union, his team of young workers formed a small cooperative workshop, ULGOR, named from one initial of each of the five students’ names. It brought in about twenty more workers and started to produce a small but very practical kerosene stove for cooking and heating.

The single-burner stove was much in demand, and the coop thus thrived and grew. Today, it is called FAGOR, and its eight thousand current employee-owners in several divisions produce a wide range of high-quality household appliances sold across the world. But this small startup in 1956 contained the first secret of MCC’s success—the three-in-one combination of school, credit union, and factory, all owned and controlled by the workers and the community. Starting a coop factory or workshop alone wouldn’t work; a startup also required a reliable source of credit and a source of skills and innovation.

Typically, an MCC coop is entirely owned by its workers—one worker, one share, one vote. Worker-owners get a salary that is a draw against their share of the firm’s annual profit, and is adjusted upward or downward at the end of the year. By Spanish cooperative law, a portion of the profits has to be turned over to the local community for schools, parks and other common projects, The remainder is set aside for the repair and depreciation of plant and equipment, health care and pensions, and emergency reserves, as well as the workers’ salaries.

Technically, MCC worker-owners are thus not wage labor, but associated producers. There is an income spread, according to skill and seniority, but this is set and modified by the workers themselves meeting in an annual assembly. The assembly also elects a governing council, which in turn hires a CEO and management team. Managers can be removed from their posts, but worker-owners cannot be fired. New hires, however, can be fired or laid off during their trial period—about six months. But when their trial period ends, they can buy into the coop. If they do not have the funds for the value of their share—today about three thousand Euros—it is lent to them by the coop bank, and they

repay in small amounts over a few years. MCC coops typically have relatively fat hierarchies and a much smaller number of supervisors compared to similar non-coop firms.

The Ten Principles

Father Arizmendi’s most important intellectual contribution to MCC was the wider formulation of this structure into ten governing principles, which are firmly held and practiced throughout MCC. There is some flexibility around the edges, but not much. Here’s a brief description:

• Open Admission. This means non-discrimination, that all are invited to join the coops—men or women, Basque or non-Basque, religious or non-religious, or from any political party or nonpartisan.

• Democratic Organization. The principle of ‘one worker, one vote’ is the core here, but it also entails a wider participatory democracy in the workplace and engagement with the management team.

• Sovereignty of Labor. This is the underlying core belief describing the overall relation between capital and labor, primarily that labor is the dominant power over capital, at least within the coops, if not fully in the wider local community.

• Capital as Instrument. This is a corollary of the point above. It defines capital as an instrument or tool to be used, deployed, and governed by labor, rather than the other way around.

• Self-Management. This stresses the importance of training worker-owners not only to manage their work on the assembly line better but also to train those elected to the governing councils or selected for management teams to have a wider educational background to steer the cooperatives strategically in the wider society and its markets.

• Pay Solidarity. Here is where the worker-owners themselves determine the spread between the lowest-paid new hires and the top managers, with various skill and seniority levels in between. Originally it was set at three to one, but that was adjusted because it was too difficult to retain good managers. Today the average is 4.5 to one, compared to three hundred and fifty to one as the average for US firms. The highest single coop’s range is nine to one, and only exists at Caja Laboral, MCC’s worker-owned bank.

• Inter-Cooperation. This encourages the various coops to cooperate with each other, forming common sectoral strategies, or for transferring  members among coops when some firms’ orders are temporarily too low to provide enough work.

• Social Transformation. The coops are not to look inward and operate in isolation from the community around them. They are to make use of cooperative values to help transform the wider society. In the Basque Country, for many, this means seeing MCC’s growth as developing a progressive economy for Basque national autonomy and independence.

• Universal Solidarity. The coops are not only to practice solidarity within themselves, but also with the entire labor movement—and not only in Spain, but across the globe as well. MCC has several projects abroad providing assistance in remote areas of third world nations.

• Education. Just as the first coop was preceded by starting with a school and forming a cadre with a cooperative consciousness, MCC continues to hold education as its core value, seeing knowledge as power—and the socialization of knowledge as the key to the democratization of power in both the economy and the society.

In shaping these principles, Father Arizmendi also discovered what he believed was a fatal flaw in the cooperative theory of Robert Owen, which was the ability of an Owenite worker-owner to sell his or her share to anyone. This permitted external financiers to buy up the shares of the better firms while starving others. Thus in MCC, this is forbidden; a retiring worker may ‘cash out’ on leaving the coop, but he or she is not allowed to sell the share to anyone but a new incoming worker or to the coop itself to hold until it does. This kept MCC’s capital subordinate to its workers and is a second secret to its success.

Most of all, these principles have meant that the MCC workers retained control over their own surplus value, using it to provide themselves a modest but above-average standard of living while using their resources for measured and planned growth.

Mondragon has come a long way from ULGOR, the small workshop making the little single-burner kerosene stove. Today MCC unites one hundred and twenty-two industrial companies, six financial organizations, fourteen retailers (including the Eroski chain with over two hundred hypermarkets, super-markets, and convenience stores), plus seven research centers, one university, and fourteen insurance companies and international trade services. Its total sales in 2009 were 13.9 billion Euros and a workforce of nearly one hundred thousand people. Less than six of the one hundred and twenty coops have failed over fifty years. In the most recent economic crisis, MCC weathered the storm fairly well. No coop failed, salary reductions were modest, and the only workers laid off were the trial-period new hires. Now things are picking up again. MCC remains a dominant force in the Basque economy, the leading force in Spain overall and is now making waves in high-tech manufacturing worldwide.