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[Date Prev][Date Next][Thread Prev][Thread Next][Date Index][Thread Index] Re: Mondragon: Re: MDRGN Inaugural Message
Title: Re: Mondragon: Re: MDRGN Inaugural Message Dear Race and other colleagues, I find the idea of this new group really excellent. Best wishes Dear Mark
Thank you for your message. Needless to say, I agree with you
that ESOPs and worker co-operatives are members in good standing of
the same family, although I'm uncertain about the precise degree of
separation between them when it comes to talking about first, second
or third cousins, and it will be good if your conference later this
year can be a further step towards bringing the two streams closer
into a more productive relationship with one another. As you will have
noted, a number of people who have already contributed to the nascent
International Mondragon Studies Association (IMSA) discussion would be
well qualified to contribute to the segment on the Spanish experience,
including both SALs and the Mondragon model, and I guess that your
programming will also reflect what I believe should be axiomatic for
all these deliberations - namely, to always do everything possible to
have members of the MCC co-operaratives involved, preferably by means
of presentation of papers which reflect their active, hands-on
experience of giving effect to principles and making sure that their
expression is sustainable. This is particularly relevant given the
current interest on the part of the MCC in ESOPs as a means of
introducing participative models into their businesses in areas where
the local culture may be though to be less receptive than that of the
Basque region to the pure worker co-operative model, such as the
Eroski retail co-operatives in other parts of Spain - and their
Sofides subsidiaries in France - and the overseas manufacturing
subsidiaries which are scheduled to more than double from what was at
my last count around 22 to 55 by the end of 2002.
Meanwhile, as you may be aware, the Australian experience of
ESOPS has in some respects fallen short of the hopes the authors of
our original legislation had for it, as witness evidence before the
select committee of the Australian parliament which reported on it a
year or so ago. The report is discussed in the attached copy of
a draft chapter for somebody's as yet unpublished edited book that I
prepared shortly after its being tabled in parliament, and that COG
may wish to include in its library. Best wishes, Race
Mathews
-- Dr Race Mathews, Senior Research Fellow, Government and Governance Unit, Faculty of Business and Economics Monash University. Postal Address: 123 Alexandra Avenue, South Yarra, Vic, 3141, Australia. Phone/Fax: (03) 9826 0104.
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{\b\ul Mutualist Options for Employee Ownership, Industrial Democracy and
Workplace Reform\par
\par
Race Mathews\par
}\pard \qj \par
\par
Few human aspirations are more fundamental than that of being "masters of our
own destinies" - of being in control of our lives not only as citizens but in
our workplaces. Mutuals and mutuality are a key means of transforming the
dream of workplace autonomy and industrial democracy into a reality. Examples
of workplace mutuality include employee mutuals, employee share ownership plans
(ESOPs) and worker co-o
peratives. Unhappily, Australia has been notably slower and less successful
than comparable countries in adopting mutualist workplace practices and models.
Explicit policies for mutualist solutions to Australia's festering labour
market problems and flaggi
ng economic performance now need to be taken seriously, not least by the Labour
Movement and the Australian Labor Party. \par
\par
{\b\ul Mutualism} \par
\par
Mutualism is about self-help - about people helping themselves by helping one
another. What mutualist bodies - bodies such as mutual life assurance
societies, permanent building societies, friendly societies and co-operatives -
also have in common with one
another is that they are almost always a response to urgent community needs.
For example, the Rochdale Pioneers - the tw
enty-eight poor cotton weavers who established their retail co-operative in
Toad Lane in Manchester in 1844 - were responding to an urgent community need
for affordable household requisites such as food and fuel.\par
\par
Credit co-operatives were a response to the need for affordable carry-on loans
for smallholder farmers, and later for affordable consumer finance. Friendly
societies were initially a response to the need for funeral benefits, and,
later, for unemployment b
enefits, sickness benefits and medical and
hospital care. Access to affordable life assurance was offered by mutual life
assurance societies, as was access to affordable home loans by building
societies. Agricultural processing and marketing co-operatives met a pressing
need on the part of farmers
to capture value added to their produce beyond the farm gate. \par
\par
Trade unions were originally mutualist bodies or co-operatives formed by
employees in response to a pressing need to obtain better working conditions
and a just price for their labour. Work
er co-operatives responded to the need on the part of workers for secure
employment and access to the added value from their labour, by enabling them to
own their workplaces and jobs - by enabling labour to hire capital rather than
capital labour.\par
\par
{\b\ul The Employee Mutual}\par
\par
Needless to say, mutualist measures for employee ownership and control of
workplaces offer nothing to the increasing number of Australians who are
unemployed, under-employed or experiencing chronic job insecurity. The initial
challenge for mu
tuality in the workplace is to obtain work for those to whom currently it is
being denied. While, as will be seen, mutuals such as the great complex of
manufacturing, retail, financial, service and support co-operatives - now the
Mondragon Co-operative Cor
poration - at Mondragon in the Basque region of Spain have been triumphantly
successful in creating new jobs and putting back to work great numbers of
people who would otherwise have remained unemployed, other forms of mutualism
may be of
more direct and immediate relevance to the current predicament of Australia's
unemployed. \par
\par
For example, employee mutuals - a new and radical mutualist model for dealing
with employment problems which is currently being pioneered in Britain - may
well have much to offer Australia.
Like all other mutuals, employee mutuals are about people helping themselves by
helping one another. \par
\par
Employee mutuals bring together key stakeholders in the labour market in a
dynamic partnership for employment growth and upgrading. The aim is to help
their members find work, improve their skills and manage their working lives.
Members of employee mutuals include both unemployed and employed workers,
together with small and larger businesses, non-government organisations and
community groups. \par
\par
Employee mutuals are member-owned bodies, operating on a co-operative basis,
although not necessarily registered as co-operatives. There is a small
professional staff, but the balance is heavily towards voluntarism and
contributions in kind. Close links
are maintained between employee mutuals and their local communities, and
employee mutuals seek to be closely attuned and responsive to local
circumstances and needs. \par
\par
The benefits for workers include access to such core services as training,
benefits advice, career counselling, job search and child care. Not least,
belonging to an employee mutual helps the unemployed to keep in touch with the
world of work.
Business members benefit from the role of the employee mutual as an employment
agency, supplying permanent or temporary staff, on either a full-time or a
part-time basis. \par
\par
An additional benefit for business members is that the employee mutual can
accredit the workers it provides and guarantee to replace them in the event
that they turn out to be unsuitable. Business members
pay lower fees than non-members for services from the employee mutual. \par
\par
Employees and self-employed members pay a modest weekly contribution to the
employee mutual. Contributions from the unemployed are mainly in kind. An
unemployed member might enter into a contract with the mutual, to provide an
agreed number of hours
of voluntary work in return for services such as job search and support. For
example, the employee mutual might train unemployed members to provide child
care for those who have jobs. \par
\par
Unemployed members might also make up teams for canvassing local employers for
jobs both others members and themselves, marketing the services of the mutual
to businesses and encouraging them to join. Other again might
be trained as trainers in basic skills including literacy, and encouraged to
act as mentors for their peers. \par
\par
The employment mutual might provide volunteers for local projects such helping
older or disabled people or making improvements to the local environment. It
would be possible to record members' contributions in cash and kind on a smart
card, which could als
o be debited for services from the mutual.\par
\par
Business members pay the employee mutual contributions in proportion to their
sizes and turnovers. Their presence gives other businesses confidence in the
reliability of the employee mutual and the quality of its services. Business
members can
also help out the employee mutual by providing it with office accommodation, or
making available seconded secretarial staff. \par
\par
In some instances, businesses and the employee mutuals to which they belong
might joint venture a service which they both need, such as a child care
centre. Business members can
help employee mutuals with the development of their business plans, audit their
books and monitor the outcomes of their work.\par
\par
Employee mutuals can accept government contracts for the delivery of employment
and training programs. Ideally, membership of an employee mutual would be
acceptable to government agencies as proof of being in search of work when
establishing eli
gibility for benefit payments. The government could also introduce modified
benefit rules for members of employee mutuals, in order to reduce fears such as
of a loss of income during the transition into work, and thereby
make it easier for the unemployed to take jobs. Government seed funding might
be necessary in order get employee mutuals started, but they should become
independent of it as soon as possible.\par
\par
How all this might work is apparent from the example of the Wise Group of
construction and home-improvement companies in Glasgow. Training and work
experience programs offered by the Wise Group a
re currently being taken up by about 1500 people each year. To date 90 per cent
of the group's trainees and 55 per cent of the participants in its work
experience programs have got jobs. \par
\par
The group now plans to expand its intake of trainees to 5000 within four years.
It will also accompany the increase with the establishment of an employee
mutual which all its trainees will be able to join. The new mutual is envisaged
as "
providing a sophisticated, cohesive and structured package of support to people
when they leave our programmes which will help them find and retain jobs and
access further education".{\fs18\up6 \chftn {\footnote \pard\plain \s246
\f3\fs20 {\fs18\up6
\chftn } Quoted in Leadbeater C. and Christie I. 1999, {\i To Our Mutual
Advantage}, London Demos, p. 75.}} Its services will include provision of
information about job vacancies, along with access to opportunities for
continuing education, child care
and a credit union. A small management team will work with an extensive network
of volunteer local agents on housing estates around Glasgow.{\fs18\up6 \chftn
{\footnote \pard\plain \s246 \f3\fs20 {\fs18\up6 \chftn }
For an extended account of employee mutuals see Leadbeater C. and Martin S.
1998, {\i The Employee Mutual: Combining Flexibility with Security in the New
World of Work}, London, Demos.}} \par
\par
{\b\ul Entry-Level Workplace Mutuals}\par
\par
How then, when the initial hurdle of getting people back into the workforce has
been cleared, can mutuality contribute to enabling them to own their jobs
either wholly or in part - to become "masters of their own destiny" in the
workplace, as well as
in their capacity as citizens? A useful mutualist starting point is the
Employee Share Ownership Plan. One way of understanding ESOPs is as entry-level
workplace mutuals, valid either as they stand, or as the starting points fr
om which fully worker-owned businesses can evolve. ESOPs have the educative
advantage of proceeding from the familiar to the unfamiliar - from holding
shares in a workplaces to wholly owning it
. None of this means that ESOPs are a panacea for all forms of workplace
dysfunction. Nor should the claims made for them be immune to scrutiny. \par
\par
The Whitlam government's Income Tax Assessment Act (No.2) 1974 amended the
Income Tax Assessment Act 1936 through the addition of a new Section 26AAC
designed to promote and facilitate the adoption of ESOPs. The measure was su
pported by the Coalition Opposition of the day, and further amendments have
been enacted by both Labor and Coalition governments. Current ESOP provisions
are in Section 13A of the Act.
In 1999, the conservative coalition government asked the House of
Representatives Standing Committee on Employment, Education and Planning
(HRSCEEWR) to inquire into and report on ESOPs. The Nelson committee - so
named for its chairman, the conservative MP Dr Brendan Nelson - recognised that
there
been a bi-partisan intention throughout to foster employee share plans and
participation in them among general employees, while at the same time limiting
their use as vehicles for aggressive tax planning.{\fs18\up6 \chftn {\footnote
\pard\plain \s246
\f3\fs20 {\fs18\up6 \chftn } HRSCEEWR 2000, p. 9.}} \par
\par
{\b\ul Strengths of ESOPs}\par
\par
The case for the ESOP idea is plain. Traditionally, ESOPs have been seen to
mitigate the adversarial relationship between workers, managers and
shareholders by bringing their interests more closely into
alignment with one another. Workers who own shares are more likely to
understand the problems of running a business and, in particular, the risks
shouldered by the investors who supply
a business with its capital. They are better informed about the business than
outsider shareholders, and accordingly the more likely to be
patient investors and supportive of long-term planning for its future. Their
stake in the business makes them more loyal to it, and thereby reduces the
likelihood of
high labour turnover and difficulties in retaining skilled staff who are in
short supply. It is in their interest as stakeholders to make the business more
productive by cutting costs and improving quality. \par
\par
Businesses with ESOPs are less likely to move away from the communities where
their workers live, and accordingly can be significant contributors to the
stabilising of local and regional economies. Experiencing the benefits of
workplaces
based on stakeholding, partnership, collaboration and co-operation may make
businesses more open to pursuing similar values in their external relationships
- for example, to working more closely with one another through collaborative
networks for
procurement, training and marketing such as are highly developed in the Emilia
Romagna region of Italy. Investing through ESOPs encourages workers to save for
their retirements, and accordingly also boosts national savings. Workers in a
small
business whose owner is retiring can use an ESOP for an employee buyout, and
thereby ensure that the business continues and their jobs are preserved.
\par
\par
As well, as the UK researcher, Charles Leadbeater, has pointed out in a seminal
1997 study for the influential Demos think-tank, the grounds for ESOPs are
likely to be stronger still in the future:\par
\pard \qj\li560
Employee ownership will help companies and employees shape the forces which are
changing the way we work and save, the way our companies are owned and managed.
Employee ownership will help us to make the most of flatter, networked
organisations. Equity bas
ed pay will help define an employment contract to ta
ke the place of the traditional "wage-effort" bargain. In an increasingly
risk-laden, uncertain world, employee partnerships can help to provide a sense
of security at work, as well as contributing to a new approach to saving,
education and pensions.{
\fs18\up6 \chftn {\footnote \pard\plain \s246 \f3\fs20 {\fs18\up6 \chftn }
Leadbeater C. 1997, {\i A Piece of the Action: Employee Ownership, Equity Pay
and the Rise of the Knowledge Economy}, London, Demos. pp. 18-22.}} \par
\par
\pard \qj {\b\ul Reservations}{\b\ul }\par
\par
However, for all these great strengths of ESOPs, they have also been the
subject of significant reservations, such as, for example, were set out by the
Australian
Council of Trade Unions (ACTU) in a policy statement adopted by its congress
in 1989, and its 1993 handbook {\i Employee Share Ownership Plans: Handle with
Care}
. The then President of the ACTU, Martin Ferguson, warned in his introduction
to the handbook that:\par
\pard \qj\li560
Share ownership plans will not of themselves produce better and more productive
workplaces. However when coupled with workplace change, greater communication
and opportunity for genuine participation, employee share ownership can be a
positive factor in im
proving business performance as well as providing financial benefits to
employees.{\fs18\up6 \chftn {\footnote \pard\plain \s246 \f3\fs20 {\fs18\up6
\chftn } Australian Council of Trade Unions 1993, {\i Employee Share Ownership
Plans: Handle With Care}
, Melbourne, ACTU, p. 1. }} \par
\pard \qj \par
A submission to the Nelson committee by a major industry body, the
Remuneration Planning Corporation Pty Ltd (RPC), reiterated that:\par
\pard \qj\li520 Financial participation projects which have a high degree of
employee and union consultation in their design and which imply a high degree
of employee participation in decision making, enabling employees to exercise
some control over the f
actors that influence productivity, are likely to succeed. Those which are
implemented without consultation, and which do not involve any employee
participation in decision making are likely to fail.{\fs18\up6 \chftn
{\footnote \pard\plain \s246 \f3\fs20
{\fs18\up6 \chftn } Remuneration Planning Corporation Pty Ltd, 2000,{\i An
Analysis of Employee Share Acquisition Schemes: Submission to the House of
Representatives Standing Committee on Employment, Education and Workplace
Relations}
. Quoted in House of Representatives Standing Committee on Employment,
Education and Workplace Relations 2000, {\i Shared Endeavours: An Inquiry into
Employee Share Ownership in Australia}
, Canberra, The Parliament of the Commonwealth of Australia, pp. 166-167.}}\par
\pard \qj The Nelson committee concurred on the evidence before it that
"Employee share plans are effective only if employees feel involved in the
operation of their employer and feel that their actions and views can influence
its wellbeing".{\fs18\up6
\chftn {\footnote \pard\plain \s246 \f3\fs20 {\fs18\up6 \chftn } HRSCEEWR 2000,
p. 166.}} The conclusion from all this is plain: ESOPs succeed to the extent
that they observe and embody mutualist principles and practices. \par
\par
Nor is this all. The committee also concluded that to date the intentions of
the parties and parliament have been widely disregarded, circumvented and
subverted.{\fs18\up6 \chftn {\footnote \pard\plain \s246 \f3\fs20 {\fs18\up6
\chftn }
Shortcomings compounded by the ATO's failing so signally to collect data on
the outcomes of ESOPs that it was unable to
provide the committee with an assessment of the effectiveness of the
legislation or respond adequately to the committee's requests for information.
For example, the committee was advised by the ATO that "The office does not
have details as to the precise extent
to which employee share ownership plans have been established or the amount of
contributions being made to either Division 13A or non-Division 13 A
arrangements". Quoted in HRSCEEWR 2000, p. 16.}} Evidence to the committee
from well-informed external sources such as the Remuneration Planning
Corporation and the Australian Employee Ownership Association (AEOA) disclosed
that substantial ESOPs - defined as plans with greater than 50 em
ployee participants and/or holding more than 2 per cent of the company's
capital - were effectively confined to Australia's larger public companies.
\par
\par
According to research by the AEOA: \par
\pard \qj\li580
For all intents and purposes, employee share ownership is limited to the 13 per
cent of employees who work for listed public companies. Out of this group of
employees only a minority can presently claim, thanks to an ESOP, to be
shareholders of the comp
anies which employ them. \par
\pard \qj As a 1997 survey made available to the committee
by the RPC confirms, "Of those public companies with an employee share plan,
more than 80 per cent would only offer participation to senior executives, and
less than 10 per cent would have meaningful, all-employee plans in
place".{\fs18\up6 \chftn
{\footnote \pard\plain \s246 \f3\fs20 {\fs18\up6 \chftn } RPC 2000, quoted in
HRSCEEWR 2000 p. 24.}} \par
\par
Far from the divide between the aggregate values of plans open to all employees
and those restricted to senior executives being reduced, it is increasing
dramatically. The committee reported
a recent survey as having revealed that "in the year from 1 April 1999 to 31
March 2000, executive share plans increased in value by some 124 per cent while
non-executive employees experienced gains to 29 per cent".{\fs18\up6 \chftn
{\footnote
\pard\plain \s246 \f3\fs20 {\fs18\up6 \chftn } Clegg B. and Hepworth A.
"Hightech Employees Rethink Pay", {\i The Australian Financial Review}, 16 May,
2000, p. 26 Cited in HRSCEEWR 2000, p. 11. }} The findings of the survey are
consistent with
the disclosure in a submission to the committee from the Finances Sector
that:\par
\pard \qj\li560 In 1992 the chief executive of a major financial institution
was paid 42 times the wage of a first-year bank teller. In 1998, the chief
executive's position attracted a salary 103 times that of a first year bank
teller.{\fs18\up6 \chftn
{\footnote \pard\plain \s246 \f3\fs20 {\fs18\up6 \chftn } HRSCEEWR 2000, p.
200}}\par
\pard \qj In 1999-2000, salaries and bonuses paid to the CEOs of Australia's
top 20 companies increased by 23 per cent to an average of $1.97 million, or 48
times the average weekly wage.{\fs18\up6 \chftn {\footnote \pard\plain \s246
\f3\fs20 {\fs18\up6
\chftn } {\i Age}, 16/11/00}} \par
\par
Over and above the hijacking of ESOPs by major companies for the benefit of
their most senior executives, they have
been abused on an on-going basis by the tax avoidance industry as a vehicle
for creating "plans specifically designed for aggressive planning by corporate
taxpayers and high wealth individuals".{\fs18\up6 \chftn {\footnote \pard\plain
\s246 \f3\fs20 {
\fs18\up6 \chftn } HRSCEEWR 2000, p. 12.}} \par
\par
While the loophole has been brought to the attention of successive governments,
legislative amendments to date have failed to terminate the abuse. The
Australian Taxation Office (ATO)
advised the committee that of some $1.5 billion invested in aggressive taxation
schemes arising from employee benefit provisions, about one quarter, or $375
million, was contributed by employee share plans.{\fs18\up6 \chftn {\footnote
\pard\plain \s246
\f3\fs20 {\fs18\up6 \chftn } HRSCEEWR 2000, p. 27.}} The committee recommended
that: \tab \par
\pard \qj\li580 The Australian Taxation Office receive an additional specific
appropriation to fund investigatio
n of the promoters of aggressive tax schemes, Further consideration should be
given to appropriations in support of ATO-initiated legal action should this be
supported by the outcome of systematic inquiry.{\fs18\up6 \chftn {\footnote
\pard\plain \s246
\f3\fs20 {\fs18\up6 \chftn } HRSCEEWR 2000, p. 86.}}\par
\pard \qj \par
All told, evidence to the committee invites the interpretation that what ESOPs
have in all too many instances been about is fleecing the many for the benefit
of the few. Despite a quarter of a century and more of outlays for tax
concessions for ESOPs tota
lling many hundreds of millions of dollars, no more than 400,000 of Australia's
7,304,200 employees currently belong to share ownership plans, and the
aggregate value of the plans is no more than $12 billion, and perhaps as little
as $9 billion.{
\fs18\up6 \chftn {\footnote \pard\plain \s246 \f3\fs20 {\fs18\up6 \chftn }
HRSCEEWR 2000, pp. 26, 28.}} \par
\par
As the RPC pointed out in evidence to the committee, "Australia's ESOP
participation is well behind most of the other OECD countries and it could be
argued up to 30 years behind Japan".{\fs18\up6 \chftn {\footnote \pard\plain
\s246 \f3\fs20 {\fs18\up6
\chftn } RPC 2000, p. 17. Quoted in HRSCEEWR 2000, p. 24. For balanced accounts
of the American experience with ESOPs, see Blashi J.R. 1988, {\i Employee
Ownership: Revolution or Ripoff?}, New York, Harper Business, and Gates J.
1998, {\i
The Ownership Solution: Toward a Shared Capitalism for the 21st Centurt},
Reading, Massachusetts, Addison-Wesley. }} None of this means that there are
not excellent Australian ESOPs, but rather that the aspirations to which the
Whitlam gover
nment legislation first gave expression - and which every subsequent government
irrespective of party affiliation has reiterated - have yet to be
fulfilled.\par
\par
{\b\ul Window of Opportunity}\par
\par
The tabling of the Nelson report in parliament marks a window of opportunity
for Australia to do better. Key recommendations by the committee for fostering
ESOPs include:\par
\par
\pard \qj\li520 * that Parliament enact a single piece of legislation, bringing
under one Act all laws governing employee share plans, their structure,
taxation treatment, reporting and disclosure requirements;\par
\par
* that any legislation providing for employee share ownership plans contain a
preamble that clearly articulates the public policy goals intended by
parliament;\par
\par
* that an Employee Share Plan Advisory Board be established to provide advice
on the policies to be implemented in order to foster the widespread development
of employee share ownership plans amongst general employees, and in {\i
sectors where uptake has been poorer, such as in small and medium companies and
in sunrise industries}{\fs18\up6 \chftn {\footnote \pard\plain \s246 \f3\fs20
{\fs18\up6 \chftn } Emphasis added.}}\par
\par
* that an Employee Share Plan Regulatory Agency be established, by legislation,
and operate under the aegis of the ATO;\par
\par
* that the government direct the ATO to collect information about all aspects
of employee share ownership arrangements, including the revenue foregone by the
Commonwealth through ESOPs; \par
\par
* that three years from the commencement of its operation, the Share Plan
Regulatory Agency examine the operation of employee share ownership plans and
supporting legislation, and report to Parliament. In particular, the agency
should examine:\par
\pard \qj\li1100 \par
* the cost to revenue of employee share plans whether they operate under
Division 13A or not;\par
\par
* participation rates;\par
\par
* whether the legislation is achieving the public policy outcomes intended when
it was enacted; and\par
\par
* any possible improvement to the legislative arrangements that would promote
the further spread of plans amongst general employees. \par
\pard \qj \par
While a minority report from Labor members of the Nelson committee expressed
strong reservations over
the adequacy of the committee's recommendations for eliminating the use of
ESOPs for tax avoidance purposes - and concern that unintended additional
opportunities for abuse might be created - both reports in most other key
respects reflect bi-partisan sup
port for ESOPs. In the words of the minority report "The Labor members do
support the widening of employee share ownership among non-executive
employees"{\fs18\up6 \chftn {\footnote \pard\plain \s246 \f3\fs20 {\fs18\up6
\chftn } HRSCEEWR 2000, p. 295.}}.
\par
\par
The minority report also singled out for explicit endorsement the statement by
the committee chair
man, Dr Nelson, that "We are not interested in doing anything to liberalise
access to employee share ownership plans at the executive end of the market ...
if there is to be any liberalisation it is about making sure that employee
ownership is more accessi
ble to everyday workers".{\fs18\up6 \chftn {\footnote \pard\plain \s246
\f3\fs20 {\fs18\up6 \chftn } HRSCEEWR 2000, pp. 289 - 290.}} \par
\par
The support from the Labor members is consistent with that of their
counterparts in Britain, where the Blair Labour government has recently enacted
far-reaching new ESOPs legislation, which aims in part to achieve a greater tak
e-up of ESOPs by unlisted firms. A recent comprehensive analysis of employee
share ownership by the British taxation authorities has revealed that to date
about 1000 unlisted British companies have adopted ESOPs.{\fs18\up6 \chftn
{\footnote \pard\plain
\s246 \f3\fs20 {\fs18\up6 \chftn } Australian Employee Share Ownership
Association 2000, {\i Equity Report}, Vol. 10, No. 1.p. 15.}} \par
\par
{\ul Mondragon}\par
\par
Impressive as have the strengths of ESOPs have been seen to be, they fall short
by far of those of fully worker-owned businesses such as those at Mondragon.
The essentials of the Mondragon story are simple. The businesses
which now comprise the Mondragon Co-operative Corporation (MCC) were founded by
a committed adherent of social Catholicism, the Basque priest Don Jose Maria
Arizmendiarrieta. The Basques were on the losing side
in the Spanish Civil War. In Arizmmendiarrieta's words, "We lost the Civil
War, and became an occupied region".{\fs20\up6 \chftn {\footnote \pard\plain
\s246\qj \f3\fs20 {\fs18\up6 \chftn } Quoted in Whyte W.F. & Whyte K.K.,1991,
{\i
Making Mondragon: The Growth and Dynamics of the Worker Co-operative Complex
}(Revised Second Edition), Ithaca, New York, ILR Press, p. 242.}}{\fs20 }
Appalled by the widespread destitution in the aftermath of the defeat,
Arizmendiarrieta set out to rebuild the local economy in Mondragon, along with
the confidence and self-esteem of his parishioners. \par
\par
His approach reflected a unique amalgam of ideas. Influenced as was
Arizmendiarrieta primarily by his social Catholicism, he also drew freely on a
rich and disparate range of other traditions in
cluding Rochdale co-operativism, Raiffeisenian credit unionism, social
democracy, Christian socialism and Bellocian distributism. Mondragon
co-operativism and the triumphant success of the co-operatives which embody it
is his enduring memorial.{\fs20\up6
\chftn {\footnote \pard\plain \s246\qj \f3\fs20 {\fs18\up6 \chftn } For the
best account of Arizmendiarrieta's thought so far available in English, see
MacLeod G. 1997, {\i From Mondragon to America: Experiments in Community
Economic Development}
, Sidney, Nova Scotia, University of Cape Breton Press. For a more
comprehensive account in Spanish see Azurmendi J. 1991, {\i El Hombre
Cooperativo: Pensamiento de Arizmendiarrieta}, Mondragon, Otalora Institute.
}}{\fs20 }\par
\par
>From a standing start in 1956, the Mondragon co-operatives have grown to the
>point where they are now the largest business group in the Basque region of
>Spain, the ninth largest business group in Spain and a major competitor in
>European and global marketpl
aces. Wh
at began forty-four years ago as a handful of workers in a disused factory,
using hand tools and sheet to make oil-fired heaters and cookers, has now
become a massive conglomerate of some 160 manufacturing, retail, financial,
service and support co-operati
ves. Annual sales are now approaching - and will shortly exceed - $A12 billion.
\par
\par
The MCC report for 1998 shows that sales of manufactured goods were up on 1997
by 13.8%, assets by 25.9% and profits by 31.7%. All told, the MCC provides jobs
for roughly 3%
of the Basque region's 1,000,000 workers. While the region has lost 150,000
jobs since 1975, and the level of unemployment is currently around 20%,
employment in the co-operatives increased between 1997 and 1998 from 34,397 to
42,129. Export sales of MCC p
roducts in 1998 were up on 1997 by 18%, to 47%.{\fs20\up6 \chftn {\footnote
\pard\plain \s246\qj \f3\fs20 {\fs18\up6 \chftn } {\i Mondragon Corporacion
Cooperativa} ,{\i 1998 Annual Report.} Mondragon, MCC.}}
The MCC is Spain's largest exporter of machine tools and largest manufacturer
of white goods such as refrigerators, stoves, washing machines and dishwashers.
It is also the third largest supplier of automoti
ve components in Europe - designated by General Motors in 1992 as "European
Component Supplier of the Year" - and a leading supplier of components for
domestic appliances. \par
\par
Whole factories are designed and fabricated to order in Mondragon, for buyers
overseas. In addition, subsidiaries operated by the MCC in conjunction with
overseas partners manufacture - for example - semi-conductors in Thailand,
white goods components in M
exico, refrigerators in Morocco and luxury motor coach bodies in China. MCC
constr
uction co-operatives carry out major civil engineering and building projects at
home and abroad, the building of key facilities for events such as the
Barcelona Olympic Games. The steel structure for the new Guggenheim Museum in
Bilbao - a building compara
ble in stature to the Sydney Opera House - was\~fabricated by a Mondragon
co-operative. \par
\par
The MCC also includes Spain's fastest-growing retail chain - Eroski - which
currently operates 37{\i }Eroski and Maxi hypermarkets, 211 Consum
supermarkets, 419 self-servi
ce and franchise stores and 333 travel agency branches. The MCC financial
co-operatives - the Caja Laboral Popular{\i }credit union (CLP) and the
Lagun-Aro social insurance co-operative - are among Spain's larger financial
intermediaries.\par
\par
The basic building blocks of the MCC are its manufacturing, retail, financial
and service co-operatives, otherwise known as primary co-operatives. The
primary co-operatives embody and exemplify the key values and principles of
mutualism. Each primary co-op
erative is governed
by a General Assembly. General Assembly meetings are held at least annually to
receive reports and determine policy. The Assembly in turn elects by and from
its members a Governing Council, ranging from three to twelve members. The
Council steers the affai
rs of the co-operative between Assembly meetings. Governing Council members
hold office for staggered four-year terms, with elections at two
year-intervals. \par
\par
There is also an Audit or Watchdog Committee to independently monitor the
co-operative's financia
l performance and its compliance with its formally established policies and
procedures. The Governing Council holds regular consultative meetings with a
Management Council consisting of the Chief Executive Officer and his senior
executives. Independent of
the Assembly and its offshoots, workplace groups within the co-operative elect
a Social Council, which has a quasi-trade union function, with responsibility
for areas such as job evaluation and industrial health and safety. Recent years
have seen an increa
sing emphasis on industrial democracy - on participation and consultation at
the shopfloor level - within many of the co-operatives. \par
\par
Individual co-operatives are linked in co-operative groups. Originally, the
groups had a geographical basis. However, with the establishment of the MCC in
1991 - with the replacing of Mondragon Mark I by the current Mark II model -
they have been re-consti
tuted along functional lines. There is a Financial Group, a Retail Group and an
Industrial Group, with the Industrial Gro
up in turn split into seven sub-groups. The aim is for the co-operatives
within each group to engage in in-depth and continuous strategic planning, to
identify and exploit economies of scale and business synergies, and to operate
within an agreed overall
strategy.\par
\par
A further and final level of linkage is afforded by the peak bodies of the MCC:
the MCC Congress, the General Council and the Standing Committee. The key role
of the Congress is setting the overall policy and direction of the
co-operatives. The
General Council is responsible for drawing up and applying overall corporate
strategies and co-ordinating the activities of the co-operatives and
co-operative groups. The Standing Committee monitors the performance of the
Committee and the groups, and se
es that the decisions of the Congress are implemented. \par
\par
To what then are the achievements of the MCC attributable? Firstly, the success
of the co-operatives stems from the fact that every permanent worker is an
equal co-owner of the co-operative where he
is employed, with an equal say on a one-member-one-vote basis in the
governance of the co-operative and an equal proportionate share in its profits
or, on occasion, losses. Each worker has an individual capital account which is
credited annually with his
share of the co-operatives profits and enables him to maintain an on-going
appraisal of the performance of the co-operative and its the management and his
fellow members. In the words of a recent CEO of the MCC, Javier Mongelos, "The
workers who own these
co-operatives know their future depends on making profits".{\fs20\up6 \chftn
{\footnote \pard\plain \s246\qj \f3\fs20 {\fs18\up6 \chftn } Mongelos J. 1994,
as quoted in Parry J.N. "Mondragon Pushed to the Peak of Success", {\i
European}, 28/10/94, p. 12.}
} The upshot is - among other things - a reduction in the agency costs the
co-operatives incur, and a corresponding increase in their competitive
advantage.{\fs20\up6 \chftn {\footnote \pard\plain \s246\qj \f3\fs20 {\fs18\up6
\chftn }
For agency costs and competitive advantage in worker-owned businesses, see
Mathews R. 1999, {\i Jobs of Our Own: Building a Stakeholder Society}, Sydney,
Pluto Press (Australia) and London, Comerford & Miller, pp. 10-12.}}\par
\par
Secondly, the primary co-operatives are serviced on a mutualist basis by a
unique system of secondary support co-operatives. Arizmendiarrieta became aware
at an early stage of the development of the co-operatives of the need for them
to be self-sufficient.
The support co-operatives were his an
swer. Capital is now sourced by the primary co-operatives from a support
co-operative, the Caja Laboral Popular credit union (CLP), as is - for example
- superannuation and other benefits from the Lagun-Aro social insurance
co-operative, research and devel
opment services from the Ikerlan and Ideko research and development
co-operatives and technical skilling from the university of technology
co-operative. The structure of the support co-operatives differs from the
primary co-operatives, in that they are own
ed and governed jointly by their workers together with their primary
co-operative clients. Profits distributed to workers in the secondary support
co-operatives are linked to those of the primary co-operatives. \par
\par
Third - and finally - the Mondragon credit union, the Caja Laboral Popular, has
been much more than simply a source of capital for expanding current
co-operatives or creating new ones. In the phase of rapid expansion which
preceded the maturing of the co-o
peratives as signalled by the establishment
of the MCC, what was then the Empresarial or Entrepreneurship Division of the
CLP offered a uniquely comprehensive and effective service for incubating
co-operatives and ensuring their success. Groups seeking to establish
co-operatives were initially assi
gned a mentor or "godfather" to work with them in the preparation of their
application for a loan. Once loans were secured, the mentors remained with the
co-operatives in order to assist them in the setting up of their business and
enabling them to operate
profitably. \par
\par
As a condition of its loan, a new business entered into a Contract of
Association with the CLP which specified - among other things - the mutualist
structure and processes it should adopt. It was likewise a condition of the cont
ract that specified performance
and financial data should be reported to the CLP on a regular basis. Thanks to
regular and comprehensive reporting, the CLP could count on receiving early
warning where co-operatives experienced difficulties, and provide added
specialist
support through an Intervention Group within its Empresarial Division. \par
\par
So effective was the Entrepreneurial Division that only a handful of the
co-operatives have failed to become going concerns.{\fs18\up6 \chftn {\footnote
\pard\plain \s246 \f3\fs20 {\fs18\up6 \chftn } Attemps by the Australian scholar
, Sanda Harding, to establish the exact number of co-operatives which have
failed were inconclusive, with the total given as twelve by unionists in
Mondragon and as three by a senior representative of the MCC. Harding S. 1998,
"The D
ecline of the Mondragon Co-operatives" in {\i Australian Journal of Social
Issues}, Vol. 33, No. 1, February, 1998. p. 74. }}
Consequent on the establishment of the MCC - on the move of the co-operatives
from the Mark I to the Mark II stage of their development - the functions of
the Empresarial Division have now been re-assigned, with some elements being
incorporated within the
MCC and others in new management consultancy support co-operatives. Mondragon's
on-going expansion is now much less through establishing new co-operatives, and
more through strategic acquisitions and alliances. \par
\par
{\b\ul Conclusion}\par
\par
That the co-operatives have changed the way they go about their business in
response to changing circumstances should surprise nobody. Their approach was
aptly summarised by Arizmendiarrieta when he wrote "We build the road as we
travel".
We in Australia should not be too proud to learn from the Mondragon experience,
and in our turn "build the road as we travel".
We have much to gain from mutuals and mutualism, not least in the workplace,
and the sooner a start is made the sooner the benefits can begin to be
enjoyed.\par
\par
\par
\par
{\i
Race Mathews is a Senior Research Fellow in the International Centre for
Management in Government at the Monash-Mt Eliza School of Business and
Government, and a former board member and chairman of the Waverley Credit Union
Co-operative Ltd. He was previou
sly chief of staff to Gough Whitlam as Leader of the Opposition 1967-72, a
federal MP, a state MP and minister and a municipal councillor. His }{\i\ul
Australia's First Fabians: Middle-Class Radicals, Labour Activists and the
Early Labour Movement} {\i
was published by Cambridge University Press in 1994, and his }{\i\ul Jobs of
Our Own: Building a Stakeholder Societ}{\i y} {\i in 1999 by Pluto Press
(Australia) and Comerford and Miller (UK). His E-mail address is
<race@netspace.net.au>\par
\par
}\par
\par
\par
\pard \par
}
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