This paper is about the great complex of manufacturing, financial, retail, civil engineering, service and support co-operatives

MONDRAGON: PAST PERFORMANCE AND FUTURE POTENTIAL

Exposure Draft of a Paper in Honour of the Late Professor William Foote Whyte, to be Presented at the Kent State University Capital Ownership Group Conference, Washington, October, 2002

Race Mathews

ABSTRACT

This paper is about the great complex of manufacturing, financial, retail, civil engineering, service and support co-operatives - now the Mondragon Co-operative Corporation (MCC) - at Mondragon in the Basque region of Spain. The intellectual origins and underpinnings, history and current status of the co-operatives are reviewed, future opportunities and challenges are identified, and conclusions are drawn about how possible responses can be made to happen, and what are the lessons for other countries such as Australia and the United States. There is seen to be a pressing need for an International Mondragon Studies Association, to facilitate an on-going, free and open exchange of ideas and information about Mondragon, both among Mondragon scholars and between them and the co-operatives and their members. The aim is seen to be to make Mondragon studies a two-way street – to as much give back to Mondragon as gain from it.

THE MONDRAGON CO-OPERATIVES

The great complex of industrial, retail, financial, civil engineering, service and support co-operatives based on Mondragon in the Basque region of Spain – now the Mondragon Co-operative Corporation (MCC) - provides an object lesson in the uses of employee ownership to create jobs, drive regional economic development, facilitate entrepreneurship and empower workers to assume control of their workplaces and the wealth created by their labour. It demonstrates conclusively the feasibility of labour hiring capital instead of capital labour. It demonstrates how social and economic objectives within firms and between them and the wider community can be harmonised with one another. These are all good reasons why the rest of the world should get to know all it can about Mondragon. They are also good reasons for providing feedback on what is learned from Mondragon – for ensuring that as great benefits are returned to the co-operatives as are received from them.

The essentials of the Mondragon story are simple. From a standing start in 1956, the Mondragon co-operatives have grown into what is now the largest business group in the Basque region of Spain, the seventh largest business group in Spain and a major competitor in European and global marketplaces. What began forty-six years ago as a handful of workers in a disused factory, using hand tools and sheet metal to make oil-fired home heaters and cookers, has become a massive conglomerate of some150 autonomous but intricately inter-related firms.

All told, the co-operatives employ roughly 3 percent of the Basque region’s 1,000,000 workers. While the region has lost 150,000 jobs since 1975, and unemployment even on official figures fluctuates between 15 and 20 per cent, employment in the co-operatives has increased since over the last five years, from 34,397 to 60,000, and further increases are anticipated.

Annual sales for the manufacturing co-operatives alone total more than $US3 billion, and sales for the retail co-operatives are in excess of $US3.5 billion. The MCC report for 2000 notes that sales of manufactured goods were up on 1999 by 18 per cent, investment by 37 per cent and assets by 17 per cent. Exports were up on 1999 by a further 22 per cent, to a stunning 49.4 per cent of all output.

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 automotive components in Europe – designated by General Motors in 1992 as ‘European Components Supplier of the Year’ – and a leading supplier of components for domestic appliances. Total Quality Management awards gained by the manufacturing co-operatives in the year 2000 included the European Foundation for Quality Management’s European Quality Prize, and Gold and Silver Q prizes from the Basque Foundation for the Promotion of Quality.

Whole factories are designed and fabricated to order in Mondragon for buyers overseas. In addition, the MCC has some 22 overseas business subsidiaries, manufacturing – for example – semi-conductors in Thailand, white goods components in Mexico, refrigerators in Morocco and luxury coach bodies in China. It is expected that the number of subsidiaries will to double to around 55 by the end of 2002.[1]

MCC construction co-operatives carry out major civil engineering and building projects at home and abroad, including the building of spectator stands and other key facilities for events such as the Barcelona Olympic Games. The steel structure for the new Guggenheim Museum in Bilbao – a building comparable in stature and complexity to the Sydney Opera House – was fabricated by a Mondragon co-operative.

Not least, the retail co-operatives – Eroski and Consum – are Spain’s fastest-growing retail chain, with some 47 hypermarkets, 796 supermarkets, 569 self-service and franchise stores and a range of other specialist outlets. An Eroski subsidiary, Sofides, operates 3 hypermarkets and a chain of 19 supermarkets in France. The MCC’s financial co-operatives – the Caja Laboral Popular credit union (CLP) and the Lagun-Aro social insurance co-operative – are among Spain’s larger financial intermediaries.

ARIZMENDIARRIETA AND EVOLVED DISTRIBUTISM

What then has been the background to this these remarkable achievements? The co-operatives were founded by a committed adherent of social Catholicism, the Basque priest Don Jose Maria Arizmendiarrieta. The Basques had been on the losing side in the Spanish Civil War. In Arizmendiarrieta’s words, ‘We lost the Civil War, and became an occupied region’.[2] Appalled by the widespread destitution in the aftermath of the defeat – by the intense privation of the period the Basques now remember as ‘the hungry years’ – Arizmendiarrieta set out to rebuild the local economy in Mondragon, and thereby the confidence, self-esteem and well-being of his parishioners.

His approach reflected a unique amalgam of ideas. Influenced as was he by the Catholic social teachings which Pope Leo XIII set out in 1891 in his social doctrine encyclical letter De Rerum Novarum, he also drew freely on a rich and disparate range of traditions, including – to name only the more obvious - Rochdale co-operativism, Raiffeisenian credit unionism, social-democracy, Christian socialism, guild socialism and Bellocian distributism. While Arizmendiarrieta never seems to have given his philosophy a specific name, it can best be understood as an ‘evolved distributism’. [3]

Distributism in its original form was developed as a means of giving practical effect to the teachings of De Rerum Novarum, by the English writer Hilaire Belloc. Its basis is the belief that a more just social order can only be achieved through a much more widespread distribution of property. Distributism favours a ‘society of owners’ where property belongs to the many rather than the few, and correspondingly opposes the concentration of property in the hands either of the rich, as under capitalism, or the state, as advocated by some socialists. In particular, ownership of the means of production, distribution and exchange must be widespread.

The platform of the Distributist League, which Belloc and his close friend and fellow writer, G.K. Chesterton, founded, stated bluntly that ‘Every worker should own a share in the assets and control of the business in which he works’. The distributists also strongly favoured co-operatives. As the US historian, Dermot Quinn, has noted, ‘Co-operatives were essential to the distributist ideal. They combined ownership, labour for profit, reward for initiative, a degree of self-sufficiency, elimination of waste (as in the duplication of equipment or use of unnecessary middlemen) and a strong commitment to reciprocal self-help’.[4]

Distributism has been seen by many to have faded away with the death of Chesterton in 1936 and the coming of the Second World War, but they are mistaken. Distributism had not so much died as emigrated to Canada. It was alive and well in Nova Scotia, where it was embraced and given practical hands-on effect by the remarkable Antigonish Movement which two further Catholic priests, Father Moses Coady and Father Jimmy Tompkins, established there in the straitened economic circumstances of the late 1920s.

The Antigonish Movement can be seen to have been, in a very real sense, the precursor of Mondragon, and Coady and Tompkins to have been Arizmendiarrieta’s predecessors.[5] It is unlikely that as widely read and attentive a student of Catholic social teachings and ways of giving effect to them as Arizmendiarrieta could have been unaware of the Antigonish Movement.

As the Canadian scholar, Michael R. Welton, notes in his recent biography of Coady, as early as 1938, news of the exploits of the Antigonish Movement had spread ‘even to the inner sanctum in Rome’.[6] The strong support of Pope Pius XI for the Movement was set out that year in a letter over the signature of the then Secretary of State of the Vatican, Cardinal Pacelli. ‘May the work grow and flourish’, the letter reads, ‘and with unswerving purpose of mind and will, be carried on to a complete fulfilment’. [7] When Pacelli succeeded to the papacy as Pius XII, he re-affirmed papal support for the movement by naming Coady as a Domestic Prelate with the rank of Monsignor. The appointment was announced in 1946, when Arizmendiarrieta’s work in Mondragon was getting into its stride.

Throughout the late 1930s and into the 1950s, Catholics throughout the world turned to Antigonish – and in many instances visited there - for re-assurance that implementing the teachings of De Rerum Novarum was a practical proposition. A key historian of the Movement - and onetime Associate Director to Coady at the Extension Department of the University of St Francis Xavier which so largely inspired its development - Alex Laidlaw, concludes that ‘Where churchmen preached endlessly about the social encyclicals, never daring even to hope that they would be translated into action, the Antigonish program said: “here are ways in which the teachings of Rerurm Novarum and Quadragesimo Anno can be put to work right away … let’s to the task”’.[8]

Sentiments closer to Arizmendiarrieta’s mind and heart, or more likely to have attracted his attention, are difficult to imagine. At the precise point when he was thinking through the problem of how achieve a revival of economic activity in and around Mondragon, the Church was holding out Antigonish to his co-religionists as its answer.

Arizmendiarrieta’s ‘evolved distributism’ stemmed from two basic principles. It was his strong belief that only work and property – as opposed, for example, to consumption or saving – were so central to the lives of ordinary people as to provide the foundations on which an enduring just society could be built. He also believed strongly in the doctrine of subsidiarity – the doctrine that a higher body should not assume on behalf of a lower body functions the lower body as able to perform for itself - which was introduced by Leo XIII in De Rerum Novarum and elaborated by his successor, Pius XI, in the further encyclical Quadragesimo Anno in 1931. Quadragesimo Anno reads:

Just as it is wrong to withdraw from the individual and commit to the community at large what private enterprise and industry can accomplish, so, too, it is an injustice, a grave evil and a disturbance of right order for a larger and higher organization to arrogate to itself functions which can be performed efficiently by smaller and lower bodies.[9]

In Arizmendiarrieta’s view, the remedy in the economic sphere was plain. Labour should hire capital rather than capital labour, thereby enabling workers to assume ownership of their workplaces and become masters of their own destinies. Work afforded the individual not only his livelihood but also his identity, self-esteem and capacity to fully participate in civil society. Accordingly, it was mandatory that - to the greatest possible extent - jobs should be available for all who need them, and unemployment should be eliminated or minimised.

THE BASIC PRINCIPLES OF THE MONDRAGON CO-OPERATIVE EXPERIENCE

Arizmendiarrieta’s conclusions endowed the co-operatives with guiding principles, which ultimately were codified and adopted as a ten-point statement of ‘The Basic Principles of the Mondragon Co-operative Experience’ at their congress in 1987. The ten points are respectively: open admission, democratic organization, sovereignty of labour, the instrumental and subordinate character of capital, participatory management, solidarity, inter-co-operative co-operation, social transformation, universality and education.

The statement reads in part that admission to a Mondragon co-operative is available without discrimination on religious, political ethical or gender grounds, subject only to applicants agreeing to be bound by the principles and proving that they are appropriately qualified to carry out such jobs as may be available. Members participate in the governance of the co-operatives on an equal footing, irrespective of their positions, seniority, hours worked or capital contributions. The co-operatives recognise the primacy of labour in their organization and the distribution of the wealth they create; seek to minimise the contracting of workers who are not admitted to membership; and endeavour to provide work for all who are in need of it.

Capital is seen as being an instrument, subordinate to labour and subject to a maximum rate of return. The democratic character of the co-operatives implies a progressive extension of opportunities for involvement by their members in business management, through mechanisms and channels for participation, freedom of information, consultation, the implementation of social and professional training plans for members and the establishment of internal promotion as the preferred means for filling positions of higher professional responsibility. Solidarity is to be observed, both internally among members of the co-operatives with the effect that the highest overall remuneration should not exceed the lowest by more than a ratio currently fixed generally at six to one, and externally so that the rates for equal work are roughly the same within the co-operatives as in the wider community. [10]

There should be co-operation by co-operatives, both within and between sectoral groups, and by the co-operatives as an overall entity with the Basque and international co-operative movements. The MCC should contribute to economic and social reconstruction and to the creation of a Basque social order which is more just and expressive of solidarity; act in solidarity with all who are for economic democracy in the sphere of the social economy; and champion the objectives of peace, justice and development, which are essential features of international co-operativism; and provide education and training in co-operation for its members, management bodies and, in particular, for the younger generation of members on whom its future depends. These Basic Principles broadly reflect – and in key respects improve upon – those of the world peak council of the co-operative movement, the International Co-operative Alliance.[11]

STRUCTURE AND GOVERNANCE OF THE CO-OPERATIVES

Arizmendiarrieta’s thinking also largely shaped the structures and governance procedures within and between the new co-operatives. The basic building blocks of the MCC are its manufacturing, retail, service and construction co-operatives, otherwise known as primary co-operatives. Each primary co-operative 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 number and, on a one-member-one-vote basis, a Governing Council, with from three to twelve members. The Council steers the affairs of the co-operative between Assembly meetings. Governing Council members hold office for staggered four-year terms, with elections at two-year intervals.

There is also an Audit or Watchdog Committee to independently monitor the co-operative’s financial performance and its compliance with its formally established policies and procedures. The Governing Council meets regularly, on a consultative basis, 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 Social Councils, which have a quasi-trade union function, with responsibility for matters such as job evaluation and occupational health and safety.

Individual co-operatives are linked with one another 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-constituted along functional lines. There is a Financial Group, a Distribution Group and an Industrial Group, with the Industrial Group 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 strategic framework.

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 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 sees that the decisions of the Congress are given effect.

REASONS FOR SUCCESS

To what then is the effectiveness of these arrangements attributable? Technical and scientific excellence apart, the key factors can be summarised as motivation on the part of members of co-operatives, solidarity and mutual support within and between co-operatives, and competitive advantage consequent on agency cost savings.

As to motivation, the success of the co-operatives stems from the fact that every permanent worker is an equal co-owner of his workplace, with an equal say in its affairs on a one-member-one-vote basis and an equal proportionate share in its profits or, on occasion, losses. Each worker has a direct personal stake-holding in his co-operative, through an individual capital account which is credited annually with his share of the co-operative’s profits, and enables him to maintain an on-going appraisal of the performance and its management and his fellow members. A related incentive the possession of a secure job in a region characterised by high unemployment. In the words of a recent president of the MCC, Javier Mongelos, “The workers who own these co-operatives know their future depends on making profits”.[12]

Solidarity is a basic value of the co-operatives that is expressed in several ways. As has been seen, solidarity within the co-operatives is exemplified by a flat compensation scale that a 1987 Participative Action Research (PAR) study of Mondragon’s Fagor group of co-operatives under the leadership of the Cornell University anthropologist, Davydd Greenwood, and the then Director of Human Resources at Fagor, Jose Luis Gonzalez, has identified as being ‘among the most egalitarian found in industry anywhere’.[13]

Solidarity between co-operatives is evident in the inter-co-operative support funds such have been established respectively to help out co-operatives that encounter difficulties and thereby preserve jobs, and to make available special capital allocations for expanding existing businesses and creating new ones. Solidarity on the part the co-operatives with the wider community is expressed through the 10 per cent of the surpluses of the co-operatives which they contribute to community project and – has been seen – the fixing of rates for jobs at roughly the same levels as in nearby conventional firms.

A further instance of solidarity is the servicing of the primary co-operatives 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 to the greatest possible extent self-sufficient. The support co-operatives – along with the co-operative groups – were his answer. Capital is mainly sourced by the primary co-operatives from a support co-operative, the Caja Laboral Popular (CLP) credit union, as is superannuation and other benefits from the Lagun-Aro social insurance co-operative, industrial research and development services from the Ikerlan and Ideko research and development co-operatives and technical skilling from the university of technology co-operative.

In particular, the Mondragon credit union, the CLP, 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-operatives 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 new co-operatives and ensuring their success. Groups seeking to establish co-operatives were initially assigned a mentor or ‘godfather’ to work with them in the preparation of their business plans and loan applications. Once loans were secured, the mentors remained with the co-operatives in order to assist them in the setting up of their businesses and enabling them to operate profitably.

As a condition of its loan, a new business was required to enter into a Contract of Association with the CLP which specified – among other things – its structure and processes. It was likewise a condition of the contract 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 earning where co-operatives were experiencing difficulties, and thereby provide added specialist support through an Intervention Group within its Empresarial Division.

So effective was the Empresarial Division that only a handful of co-operatives have failed to become going concerns. Consequent on the establishment of the MCC, the functions of the Empresarial Division have been hived-off from the CLP, with some elements being incorporated within the MCC and others in new management consultancy and support co-operatives, such as Lankide Suztaketa I and Lankide Suztaketa II, and the fledgling new business incubator, Saiolan. As the World Bank economist David Ellerman has written, ‘Just as the systematised innovation of the modern scientific research laboratory represented a major advance over the garage laboratory, so the institutionalisation of entrepreneurship in the Empresarial Division of the CLP represented a quantum leap over the isolated and unorganised small business entrepreneurs of the capitalist world’.[14]

As to agency savings, the co-operatives can be seen in summary to enjoy a degree of competitive advantage consequent on their ability to minimise what agency theorists call ‘the basic agency dilemma’ - on their ability to reduce and perhaps ultimately eliminate divergences of interest which emerge inevitably between principals and agents in an agency relationship, and which thereby give rise to costs which defeat or detract from the purpose for which the relationship was created. From the perspective of creating a more rational and equitable productive system, what Mondragon is about is primarily the evolution – albeit as yet far from complete – of systems within which all principals are agents and agents principals. [15]

Needless to say, none of this implies that there are no differences of opinion within the co-operatives, or that issues are not hotly debated. As Greenwood and Gonzalez concluded from their research at Fagor: ‘Fagor is an organization that carries out its operations through discussion and debate. … The corporate culture does not resolve the issue or homogenise opinions: it tells the membership what it is important to debate about’. [16]

It follows that a key off-setting factor is the higher transaction costs which may be incurred by the co-operatives for the democratic, consultative and inclusive procedures whereby divergent viewpoints are brought into closer alignment with one another. The bottom line for their competitive advantage is the margin by which the reduction in their agency outlays exceeds the transaction costs of achieving it. Retaining and enlarging the agency advantage of the co-operatives is a key requirement – perhaps the most important single requirement – for their future well-being. Its significance cannot be over-stated. It cannot be taken too seriously.

DISAFFECTION

Even so, there are some disturbing signs that it has been insufficiently addressed. Significant levels of disaffection in some co-operatives have been identified in a number of attitudinal studies that were carried out in the mid-to-late 1980s and early 1990s. These studies were, in the first instance, the Greenwood and Gonzalez research at Fagor[17]; secondly, a survey of attitudes of members to their co-operatives undertaken for Ikasbide – the predecessor of what is today the Oralora institute – in 1990, by the Director of its Office of Sociological Research, Mikel Lezamiz[18]; and, finally, research conducted by the US scholar Sharryn Kasmir between 1987 and 1990, and reported in her largely critical account of the co-operatives in 1996.[19]

The nature of the problem is encapsulated by a member of one of the co-operatives, whom the Fagor research quotes as stating that, in the past, ‘if you saw a piece of scrap on the floor, you picked it up because it was worth a duro (a five peseta coin). Today, you give it a boot, because today the co-operative doesn’t belong to all of us’. [20] In the words of another respondent, ‘power is found above … although they say in the co-operatives we are all equal, it is not true, because I am here, below’. [21]

Greenwood and Gonzalez argued in their rigorous and persuasive analysis of the Fagor data that this damaging “‘discourse of ‘those above’ and ‘those below’” stems directly from a failure on the part of the co-operatives to match their highly democratic and participative mechanisms of governance with comparably inclusive and empowering practices at the shopfloor level:

Fagor is now caught in an institutional dilemma that does not give sufficient attention to the active development in participation in the workplace and members are aware of it. … The dissonance between the experience of being a member with equal rights and being a worker, technician or manager operating in a hierarchical system with important differentials is experienced as an inconsistency. … For those who operate on the work-floor the sense of not participating in key technical and production decisions, the feeling of being subject to technical and managerial whims, and the consequent belief that they are not being taken as equal members is pervasive.

The analysis concluded that what was needed most was for the Fagor co-operatives ‘to re-introduce more problem-solving into the work-place and to democratise production processes as they have democratised governance’. [22]

What would emerge were similar research to be conducted today is unclear. While some have argued that increasing competitive pressures and emphasis on customer satisfaction pursuant to the requirements of Total Quality Management is further distancing the co-operatives from the participative mechanisms that the Fagor research saw as being crucial for their success, significant indications of a renewed commitment to participation are also evident.[23]

For example, in 1997, the MCC convened a major international symposium on participation - the ‘Symposium on the Future of Participation’ – to show-case world best practice participation for the co-operatives. One outcome was a heightened recognition that ‘open book management’ – the making available to members of extensive financial and statistical data on the performance of their co-operatives – is likely to be ineffectual, and perhaps counter-productive, in the absence of training programs to equip the intended recipients with the skills to properly interpret and make use of it.

The remedy in part has been seen to be new training and re-training modules for managers, that are being introduced progressively throughout the co-operatives, under the guidance of their sociologist author, Lezamiz. The content of those already in place includes leadership skills, co-operative values, commitment to the co-operative and its objectives, change management, team management, communications management and involvement with the firm’s environment.

Following prolonged and robust debate within and among the co-operatives about whether and if so in what form they have an obligation to implement participative arrangements for their increasingly numerous overseas subsidiaries, the MCC established a high-level working party on the matter, including its then president-elect, Jesus Catania. The committee’s recommendation – that participative arrangements should be introduced into the overseas subsidiaries systematically, on a case-by-case basis – has been adopted by the MCC, and the committee has been re-tasked to oversee its implementation. What the decision means in practice has yet to emerge, but its implications are extensive.

New participative measures are being introduced into the Eroski retail outlets in areas of Spain other than the Basque region, which originally were structured other than as co-operatives. Eroski’s stated aim for those of its outlets that are not co-operatives is that at least half their workers will also be shareholders within five years. The US scholar George Cheney quotes Lezamiz – a member of the Fagor study team and subsequently the initiator of the Ikasbide research – as having insisted to him in 1994 and again in 1997 that many workers ‘are experiencing workplace democracy in a more concrete way than they have ever experienced it before’.[24]

It is important in thinking about these matters to keep in mind the overall assessment of the co-operatives arrived at by Greenwood and Gonzalez in the light of research at Fagor that they characterise as having been ‘intentionally critical’. They wrote:

The reader should not misunderstand this to mean that we developed a negative view of the co-operatives. The truth is the opposite. The co-operatives are strong because they can withstand conflict and because they build improvements out of gradual conflict resolution.[25]

A key to further progress for the co-operatives – to further reducing the basic agency dilemma and thereby enhancing their competitive advantage - appears to be to make democratic and participative practices a lived experience as much on the shopfloor as at the governance level. What is needed is for all members of the co-operatives to feel as powerful and personal a sense of ownership of their workplaces as would sole-proprietor shopkeepers or small manufacturers.

WHAT HAS MONDRAGON TO GIVE TO THE WORLD?

What lesson, then, can countries like Australia and the United States learn from the Mondragon experience, and what can they give back in return to Mondragon? What has Mondragon to give to the world, and what does it stand to gain?

Greenwood and Gonzalez concluded from their studies of the Fagor co-operatives that ‘Perhaps the most important reason for understanding Mondragon is that the co-operatives may have found solutions to key economic and social problems of industrial production under contemporary conditions’.[26] In the first instance, Mondragon demonstrates the feasibility of worker ownership – of the workability of labour hiring capital rather then capital labour. Mondragon has not only grown from its standing start into a major conglomerate, but survived with flying colours the points of inter-generational succession where so many of its counterparts, and co-operatives and mutuals of other kinds, are wound-up or become moribund.

Given Mondragon, it can never again be argued that worker ownership even of large-scale enterprises is impossible. At the least, the Mondragon experience should be a powerful source of encouragement for the establishment of employee share ownership plans (ESOPs). As the late Professor William Foote Whyte, co-author of the most comprehensive account of the co-operatives to date, Making Mondragon: The Growth and Development of the Worker Co-operatives Complex, has noted:

ESOPs can be an important instrument for ensuring that workers retain ownership over the long run and for giving them the possibility of participating in decision-making. ESOPs do not guarantee that the workers will participate in decision-making, or even gain control of management, but it does keep such possibilities open.[27]

One of the more recent of innumerable striking examples of ESOPs has the $US810 million buyout of the Appleton Papers, by the firm’s 2600 employees in November, 2001.

A report of the buyout reads that ‘The transaction ranks as one of the largest employee buyouts in history and marks the third paper industry buyout in three years, after the 45 per cent employee stake in Blue Ridge Paper and the 40 percent employee stake in Blue Heron Paper’.[28] Mondragon highlights the need for ESOPs legislation that properly encourages and facilitates the establishment of ESOPs, while providing safeguards against their being abused to confer disproportionate benefits on senior management.

Secondly, Mondragon demonstrates the uses of credit unions and other mutualist financial intermediaries as a means of bringing about local and regional economic development. It is unlikely that the Mondragon co-operatives would have grown to their present size or contributed on so spectacular a scale to job growth and the well-being of the local and regional economies, had it not been for the role of the CLP in mobilising the necessary capital. The CLP adopted at the outset the slogan ‘savings or suitcases’ – save locally for investment in local enterprises, or pack up and leave for because local jobs were likely to be unavailable. Its approach fell on receptive ears. People flocked to save with CLP, thereby enabling it to meet virtually in full the requirements of the co-operatives, until it was required by the Bank of Spain in the early 1990s to place a higher proportion of its loans with other borrowers.

Even today, the CLP remains a key source of capital for the further expansion of the co-operatives. In Whyte’s view, Arizmendiarrieta’s insistence that the co-operatives should be financed through debt rather then equity – through what was, in effect, the members lending money to their workplaces through their individual capital accounts and their credit union savings – must be ranked among the most significant of his many contributions to their success.

Its importance is not limited to the relative freedom from dependence on banks and other conventional financial intermediaries that it has enabled the co-operatives to acquire. There having been no need for the co-operatives to raise capital by issuing their members with shares, they are thereby are the less likely to attract the unwelcome attention of predatory would-be demutualisers. Whyte wrote: ‘Don Jose Maria made a number of other social inventions, but this initial one was most crucial.’[29]

There is no reason why Australian or US credit unions should not re-task themselves so as to shift their lending, either in part or wholly, from its present focus on personal and housing loans to bringing about economic growth for the local and regional communities of whose capital they are custodians. For example, the United Food and Commercial Workers (UFCW) credit union was the main source of equity financing for members of the union’s Local 1357 in Philadelphia, in their buyout of two abandoned supermarkets, which were then re-opened as worker co-operatives.[30]

Alternatively, new credit unions could be created for the purpose, perhaps under the CLP’s original ‘Savings or Suitcases’ rubric. In either case, risk could be minimised by syndicating larger loans between numbers of credit unions. Such risk assessment skills as were unaffordable for local and regional credit unions on an in-house basis could be provided collaboratively on their behalf, by peak bodies such as, in the case of Australia, the Credit Union Services Corporation of Australia Limited (CUSCAL). Here again, the Mondragon experience should be an incentive for enacting legislation empowering credit unions to make loans for non-traditional purposes, without sacrifice of their capacity to comply with stringent prudential requirements.

Nor need this be all. Mutual insurance societies, regional superannuation funds and pooled development funds likewise are capable if they so choose of taking up the task of harnessing local capital for local development. The story of America’s great Nationwide insurance mutual is a case in point, demonstrating as it does how the mutual was used to further the interests of its member policy-holders, in spheres other than insurance, under the inspired leadership of its founder CEO, Murray Lincoln. Lincoln wrote in his autobiography in 1960:

Because we are a company owned by our policyholders, we want them to run us. We turn to them for all sorts of decisions – encourage them, in fact, to tell us what they want, and what they don’t – for this is, literally their business and their concern. And because it is, it is going to be run in their interest, to suit their needs, and not simply to satisfy a corporation’s balance sheet. [31]

It is at least open to serious question whether so high a proportion of the members of mutualist insurance and building societies would have joined in the recent Gadarene rush to demutualisation if those bodies had demonstrated greater sensitivity to their changing needs, and willingness to respond to them.

Thirdly, the CLP demonstrates the capacity of mutualist financial intermediaries to transcend their origins as lenders, and assume additional functions such as of business incubators. Just as the cooperatives are unlikely to have prospered, or perhaps even survived, in the absence of the credit union as a source of capital, so too they would have done much less well without the services of its Empresarial Division as an incubator - in David Ellerman’s striking phrase, as a “factories factory”.

To the extent that it might be difficult in the US or Australia for purely local or regional credit unions to fund incubator services of the scale and sophistication of the Empresarial Division from their own resources, that function could also be assumed on their behalf by peak bodies, such again as CUSCAL. It may well be that the interests of nascent worker co-operatives would be better served by incubators based on credit unions and other mutualist financial intermediaries than by their state or municipal counterparts.

Fourthly, the relationship between the Mondragon primary co-operatives and the CLP and its counterpart secondary support co-operatives, such as Ikerlan, demonstrates the strengths that accrue from measures formalising and reinforcing the inter-dependence of businesses and their sources of goods and services. The amounts credited annually to the capital accounts of members of the support co-operatives and of the primary co-operatives are tied to one another.

Neither benefits without the other, and there is constant feedback to the effect that in order for either to succeed both must do so. Related interdependencies, reciprocities and mutual support are evident within the manufacturing, retail and financial sectoral groups.

There are affinities here with the highly successful networking arrangements between businesses and their suppliers that have contributed so notably to the economic development and well-being of Northern Italy. Recent research in Italy by the UK scholar and former CEO of the employee-owned firm Tullis, David Erdal, suggests that employee ownership also has wider benefits.

Erdal reports that:

On fifteen of seventeen quality of life measures, the community with high employee ownership is la better place to live than one with least employee ownership. Residents of the community with employee ownership are less likely to be victims of crime, more likely to have feelings of confidence in public authorities, more likely to have a feeling of security, less likely to be involved with domestic violence, more likely to stay in school, more likely to have training after school, more likely to enjoy better physical and emotional health, more likely to have a network of friends they can rely on in time of trouble and more likely to give blood.[32]

Erdal’s conclusions are broadly consistent with those of the US scholar Robert Putnam in his seminal Making Democracy Work: Civic Traditions in Modern Italy.

It remains for the rest of the world to begin to avail itself of these and other lessons of the Mondragon experience. One obstacle is that Mondragon, like Antigonish before it, is as much off the beaten track conceptually as geographically. Its precepts about how people should work together and relate to one another are so remote from those of the current conventional wisdom as to be readily overlooked. There is no means by which Mondragon can be drawn systematically to public attention on the scale to which its intrinsic merits and potential benefits entitle it.

A second obstacle is that no focus for Mondragon studies has as yet emerged. For all that scholarly interest in Mondragon is increasing, what gets written about it is fragmented and dispersed across a wide range of disciplines including – to name only the more obvious – industrial relations, management studies, political science, history and theology. There is no single journal, web site or forum that brings together and integrates them, and thereby enables Mondragon scholars to be made aware of what one another are doing, compare notes and cross-fertilise their respective insights. Not least, there is no mechanism for on-going dialogue between students of Mondragon co-operation and its practitioners within the co-operatives.

An International Mondragon Studies Association

What is required most, in order for Mondragon to gain benefits from the rest of the world commensurate with those the world stands to receive from it, is an International Mondragon Studies Association. The establishment of an International Mondragon Studies Association would be beneficial as much within as outside the co-operatives. For example, another important attribute of the co-operatives has been their commitment to the principle of equilibrio - to the balancing of the need of individual members with those of the co-operatives, and of the co-operatives with those of the co-operative groups and the MCC.

As William Foote Whyte and Kathleen King Whyte noted in their pioneering account of the co-operatives:

In discussions of important decisions, the word equilibrio appears again and again as a justification for any action proposed. The basic idea is that life in a co-operative should not be carried on as if it were a zero-sum game in which some win and some lose. There must be a balancing of interests and needs; we hear it said that technological imperatives must be balanced with social objectives and the financial needs of the firm must be balanced with the economic needs of the members.[33]

A no less important aspect of equilibrio for the co-operatives is its maintenance within the sphere of the topics and sources on which they draw in the up-dating of their thinking.

However, it is not clear that this requirement is adequately met by the consultants and writers to whom Mondragon managers currently look for guidance and inspiration. As George Cheney reports in a recent study of Mondragon:

From a number of managers I interviewed there, I heard comments along the lines of this one: ‘Well, what choice do we have than to adopt the best management programs of today?’ But when I questioned them further on the meaning of ‘best’. they usually pointed to the most popular books on organization in the United States (such as The Machine That Changed the World by Womack, Jones, and Roos), to the managerial program exports of Japan (such as Kaizen), to the best-known management consultants (such as Peter Drucker), and to ‘the way everyone is talking about these things in America’.

Cheney concludes that:

At Mondragon the ‘received wisdom’ of prominent management consultants and writers is often accepted virtually without question. … It was evident that both the language and methods of re-organising involved substantial borrowing of concepts from the experiences of non-co-operative multinational corporations. I was repeatedly surprised by the lack of creativity in formulating new programs of participation and productivity, especially considering the rich social tradition and record of ingenuity in the co-operatives”.[34]

Invaluable as are the innumerable books and journal articles that have been devoted to Mondragon, they are no substitute for a permanent forum for on-going exchange of information and opinion between external students of the co-operatives and the practitioners within them. An International Mondragon Studies Association would be a powerful corrective to the imbalances of intellectual input equilibrio to which Cheney has so eloquently drawn attention. It would also function as a central repository within which works about Mondragon could be brought together and made readily accessible. Links could be developed between the Association and the corporate journal of the co-operatives, Trabajo y Union, and thereby enable each to more readily access the audience of the other.

None of this is new. An International Mondragon Studies Association would do no more than build on foundations established by earlier researchers. Reflecting on the Fagor study in 1992, Greenwood regretted that, while the validity of its analysis had stood the test of time, ‘The PAR team did not develop an effective enough internal dissemination strategy for the results and methods of our work. … Managers, who were participants in the PAR work and had read and accepted our core notions, did not find it obvious how to translate our results into concrete management actions’.[35]

A further conclusion might well have been that a key component of such a dissemination strategy would have to have been for both the Fagor research and subsequent studies by Otalora’s Sociological Research Unit to be subsumed in a wider on-going conversation between students of the co-operatives outside and within them. In this way new questions could constantly be raised, new information brought forward, new insights offered and new hypotheses explored. Most of all, measures could be taken to ensure that Mondragon is exposed on a continuing basis to worldwide practitioner experience and scholarly research and reflection, on the challenges of workplace participation, democratisation and inclusion, which its experiences so strikingly exemplify.

In so much as it can be said that the jury is still out on Mondragon, what is at issue may well have been identified by Belloc, when he wrote in 1937:

The task is impossible unless there is still left in the mass of men a sufficient desire for economic independence to urge them towards its attainment. You can give political independence by a stroke of a pen, you can declare slaves to be free or give the vote to men who hitherto have had no vote; but you cannot give property to men or families as a permanent possession unless they desire economic freedom sufficiently to undertake its burdens.[36]

Is there within the current generation of members of the co-operatives as fierce a desire for economic independence as motivated Arizmendiarrieta and his associates? And, if so, is there also among external well-wishers of the co-operatives a sufficiently fierce will to work with them in seeing that economic freedom is not only defended and extended within them but made accessible much more widely to those elsewhere who might choose to avail themselves of it? These are fundamental and far-reaching questions. It is time for Mondragon and the world to make more of one another.

[1] For a useful account of the overseas subsidiaries and the issues they raise for the co-operatives, see Clamp C.A. 1999, The Internationalisation of Mondragon, Paper presented at the International Co-operative Alliance Congress, Quebec City, Canada, 30 August – 6 September, 1999.

[2] Quoted in Whyte W.F. and K.K. 1991, Making Mondragon: The Growth and Development of the Worker Co-operative Complex (Revised Edition), Ithaca, ILR Press p. 242.

[3] The most comprehensive account of Arizmendiarrieta’s ideas – Azurmendi J. 1991, El Hombre Cooperativo: Pensamiento de Arizmendiarrieta, Mondragon, Otalora Institute – regrettably has not so far been made available in an English edition. For accounts in English, see, for example, Whyte & Whyte 1991, Macleod G. 1997, From Mondragon to America: Experiments in Community Economic Development , Sydney, Nova Scotia, University College of Cape Breton Press, and Mathews R. 1999, Jobs of Our Own: Building a Stakeholder Society, Sydney, Australia, Pluto Press, and London, Comerford and Miller.

[4] Quinn D. 1995, “The Historical Foundations of Modern Distributism” in The Chesterton Review, Vol. XXI, No. 4, November, 1995. See also Mathews, 1999, Chapters1 to 6.

[5] For a concise account of the nature and history of the Antigonish Movement, see Mathews, 1999, Chapters 7 and 8, and for a more detailed version Welton M.R. 2001, Little Mosie from Margaree: A Biography of Moses Michael Coady, Thompson Educational Publishing Co, Toronto.

[7] Laidlaw A. 1961, The Campus and the Community: The Global Impact of the Antigonish Movement, Montreal, Harvest House. P. 92.

[8] Laidlaw A. 1971, The Man from Margaree: Writings and Speeches of M.M. Coady, Toronto, McClelland and Stewart,p. 75.

[9] Pius XI 1931, Encyclical Letter on Social Reconstruction, Boston, Mass., St Paul’s Editions, p. 40.

[10] However, current practice is for senior managers to earn to within ’30 per cent of market’ which could equate to a 13:1 ratio. It is also reported that the currently retiring MCC president, Antonio Cancelo, had a 12 million pesetas salary, which is 7.5 times the lowest theoretical level, but in reality a lesser multiple, given that few if any workers are actually rated at 1.0 on the scale. By contrast, the average CEO of a ‘Fortune 500’ company in the US was paid 41 times as much as the average factory worker in 1960, and 157 times as much in 1995.

[11] For the Basic Principles in full, see Ormaechea J.M. 1993, The Mondragon Co-operative Experience, Mondragon, Mondragon Corporacion Cooperativa, pp 139-86.

[12] Mongelos J. 1994, as quoted in Parry J.N. ‘Mondragon Pushed to the Peak of Success’, The European, 28 October, 1994.

[13] Greenwood D.J. and Gonzalez J.L.G. 1992, Industrial Democracy as Process: Participatory Action Research in the Fagor Co-operative Group of Mondragon, Stockholm, The Swedish Centre for Working Life. P. 17.

[14] Ellerman D. 1982., The Socialisation of Entrepreneurship: The Empresarial Division of the Caja Laboral Popular, Boston, Industrial Co-operative Association, p.4

[15] For a concise account of the principal-agent relationship, see Mathews 1999, pp 10-12, and for a more detailed explanation Donahue J.D. 1989, The Privatisation Decision: Public Ends, Private Means, New York, Basic Books.

[18] Lezamiz M. et al 1990, Estudio Sociologico Sobre Grado De Aceptacion De La Sociedad Co-operativa, Mondragon, Ikasbide Hezkuntzetxea: Centro de Formacion.

[19] Kasmir S. 1996, The Myth of Mondragon: Co-operatives, Politics, and Working-Class Life in a Basque Town, Albany, NY, State University of New York Press.

[21] Greenwood and Gonzalez 1992, Pp. 110-112.

[22] Greenwood and Gonzalez 1992, pp 110 –112, 158 - 159, 8.

[23] For competitive and customer satisfaction pressures, see for example Cheney G. 1999, Values at Work: Employee Participation Meets Market Pressures at Mondragon, Ithaca, NY, ILR Press.

[28] ‘Employees Buy Appleton Papers in $810 Million Deal’ in Owners at Work, Vol. XIII, No. 2, Winter 2001/2002, Kent, Ohio, Ohio Employee Ownership Center, p. 1

[31] Murray D.L. and Karp D. 1960, Vice President in Charge of Revolution, McGraw Hill, New York. P. 248. Nationwide has retained its status as a mutual, despite a recent widespread trend for insurance mutuals to demutualise. See also Franklin P.D. 1994, On Your Side: The Story of the Nationwide Insurance Enterprise, ISBN 0-9643584-0-9.

[32] Erdal D. 2002, “Is Employee Ownership Better for your Health?” in Owners at Work, Vol. XIII, No. 2, Winter 2001/2002, Kent, Ohio, Ohio Employee Ownership Center, p. 1

[33] Whyte & Whyte 1991, p. 275. For an extended discussion of equilibrio, see Morrison R. 1991, We Build the Road As We Travel: Mondragon, A Co-operative System, Philadelphia, New Society Publishers.

[36] Belloc H. 1937, The Crisis of Our Civilisation, London, Cassell & Co, p. 205. Italics as in the original.