Sunday, December 18, 2016

The Mondragon Coop Model

 “We are private companies that work in the same market as everybody else. We are exposed to the same conditions as our competitors.” - Mikel Zabala, Mondragón’s human-resources chief.

We would also like to make it clear that it is not the blog’s intention to discredit any individual or collective initiatives engaged in by those who, like ourselves, must search for a way to survive capitalism in the least painful way possible. What we want to point out is that these escapes are not real escapes, but simply survival strategies within capitalism. We have no objection to some fellow-workers trying to live the way they want and trying to make the best of the circumstances in which they find themselves. But what we object to is when such amelioration, which can only be nothing more than adaptations to the current system, seek to present itself as a means to transform society without having to resort to the socialist revolution.

Capitalism offers an opportunity to some workers to try to escape from their class, provided that they prove that they can provide profits to the enterprise and compete effectively on the market on the basis of exploiting themselves, or other workers or consumers. If cooperatives refrain from being exploiters or fail to push themselves to the limit then, quite simply, the co-op will not succeed because it will not be viably competitive enough.

Since the beginning of industrialisation and the birth of the labour movement, workers have tried to escape from their condition as wage earners by setting up production or consumer cooperatives. If some of them viewed cooperatives as an aim in and of itself, others considered it a means of self-defence against management repression (black lists, dismissals...). Sometimes, cooperatives have been interesting places for social experimentation but, in most cases, their evolution has been negative going no further than seeking to change the form of management of the modern enterprise.

Mondragon is often brought up as an example of a successful co-operative in action where coop members exercise highly-limited control within each co-operative through the principle of one-member-one-vote, to a board which is elected from the membership and runs the co-operative on behalf of the members. However, it must be emphasised that it is the board that makes major production decisions on behalf of the membership meaning that members have little control over the day to day running of a co-operative in the complex. The board is thus accountable to the membership only on the basis of mandate and recall in the annual election of board members. It is argued that the imperatives of the market dictate that the board ought to make major production and administrative decisions without consulting the membership in order for the co-operative to be successful in the market. With Mondragon being subject to fierce international competition, cooperative efficiency has intensified within the cooperatives. This set-off a tension between the stated social objectives (democracy, participation and accountability of management) of the co-operative, and the business-like (technical efficiency, productivity, profitability) approach to management adopted as the Mondragon co-operatives started to encounter the effects of global market instability. Firstly, emphasis was placed on the employment of wage labourers, rather than more worker-owners. Secondly, policy-making began to occur further away from the shop floor – in specialised bodies (which was not always the case in the pre-1970s period. Thirdly, an increase in joint ventures with private firms was experienced, including in some cases buyouts by the private sector and international investment in non-cooperative firms. Market pressures have engendered a situation in which direct democracy has been sacrificed for market efficiency, and the range of possible policy alternatives has been limited at the highest level of the complex to exclude any prescriptions that are not in line with the profitability and efficiency imperatives of the complex as a whole.

The structure of the Mondragón workers’ co-ops is different from other types of co-operatives. First of all, any new member wishing to join has to pay a membership fee of between £2,000/£2,500. This is more than most workers can afford so they put about 25 per cent down and the remainder is deducted from their pay over a two-year period. Having paid the membership fee, the new member is automatically allocated one share in the firm on a one share/one vote basis. The members, through the General Assembly, elect the Board of Directors who in turn appoint the management. The shares are just membership certificates and do not carry the net worth of the company’s assets plus the accumulated retained profits; these are allocated to the so-called Internal Capital Accounts (or Internal Accounts)—a system invented by the Mondragón co-operatives. Seventy per cent of the co-operative’s profit is credited to the members’ Internal Accounts according to the formula “equally per hour worked or equally per dollar pay”; similarly, if the company makes a loss, this is deducted from the Internal Accounts. The difference between the allocation to the highest and lowest remunerated member is 3-1. Should members wish to realise their capital, they normally have to wait until retirement when the firm pays it out over a period of years. If they have to leave the co-op earlier “for reasons beyond their control”, their capital will be cashed but if they leave to work for a competitor, 30 per cent of the value of their Internal Accounts will be deducted. The group headquarters of the Mondragón co-operative movement is the Caja Laboral Popular (Bank of the People’s Labour) whose main role is to be a credit institution for the associated co-operatives. Apart from the Banking Division it also has an Empresarial Division which concerns itself with the launching of new co-ops, performs feasibility studies into new market possibilities and keeps these on file for the use and further exploration of people planning to start new co-ops. The Caja Laboral Popular assigns a “godfather”, usually an experienced manager from within the group, to keep an eye on and advise the fledgeling co-ops. The Empresarial Division stays in close contact with the research and development institute, Ikerlan which is an offshoot of the Polytechnical College of the Mondragón group.

Mondragon is clearly more democratic than private enterprises or corporations whose closest analogy to a state would be a dictatorship or oligarchy. Nonetheless, democracy in Mondragon has degenerated over the last two decade. Every year, workers are required to attend the general assembly, providing them an opportunity to vote on important issues and elect the governing council. Although such an assembly carries great promise, there are a variety of obstacles to participation. Those who were interviewed complained that the general assembly almost always rubber-stamps proposals of the governing council and said that almost all decisions by referenda did not have any opposition and. When asked why not, one member replied that their managers are there watching. Another member complained about stalling tactics by management such as delaying the presentation of important issues until the end of the assembly when workers had already left. Hiring wage-labour is much cheaper for the current membership than admitting new members

What are the reasons behind the apparent "success" of these co-operatives? One factor is the economic upturn in Spain in the 1960s which resulted in heavy demand for household electrical goods. Another could be the tightly woven net comprising the co-ops; the double function of the Caja Laboral Popular: Ikerlan and the Polytechnical College. Perhaps most importantly, the willingness of workers (or "members") in co-ops to accept smaller wage rises and more spartan working conditions, as they believe they are working in their own firms and therefore have to keep an eye on costs. A further strengthening of worker solidarity in this region could be Basque nationalism. So success is that it follows much of mainstream capitalism model such as a two-tier employee structure being expanded throughout industry, out-sourcing to cheap labour countries, and if required sending its own business units to bankruptcy.

So where does control, and thereby ownership, lie in the Mondragón co-operatives? The key question is whether the workers can actually directly gain access to their capital and decide what to do with it. They cannot; in fact the whole system seems to operate like a pension scheme, as the members have to wait until retirement to realise their earnings and even then they do not get it paid out in one lump sum. Most effective control and decision making is carried out by management, who in this case would be the de facto owners of the co-operatives. It must also be remembered that cooperatives are integrated into the market system and subjected to the same economic laws as other firms.

 The theory that Mondragon could have formed part of the ‘non-capitalist’ sector in Spain, chipping away at the capitalist sector by building on year-on-year market successes falls short of understanding how the co-operatives complex has come under real pressure from global market competition and it is disappointing that Mondragon’s advocates such as Richard Wolff and Gar Alperovitz minimise this influence. Faced the spectre of capitalism internal restructuring and ‘rationalisation’ of co-operative management toward market incentives (i.e. hierarchical decision making, profitability at all costs), means that Mondragon began to resemble more ‘traditional’ capitalist firms, echoing warnings of the pitfalls of developing a supposed non-capitalist sector within capitalism. Mondragón is a typical capitalist employer operating plants in low-wage countries like Poland, Egypt, Morocco, Mexico, Thailand and China. Some employees in Spain are also non-members. In fact as many as 1/3 of Mondragon workers are not cooperative members. Any cooperative can also apply to employ up to 40% non-cooperative workers.

In cooperatives everyone is a self-exploiting worker in their own enterprise. Every individual is master and slave in one. Like any other business, the Mondragon cooperative is exposed to fierce competition from world competitors with lower labour costs. Its response has been to set up factories – or buy companies – in other parts of the world. There are now 94 subsidiaries producing goods from Vietnam to Chile, Morocco and Russia. Workers at these, however, are not co-op members although there are on-going moves to rectify that situation but it does mean that those Basque Mondragon members are presently living off the labour of others. Mondragon indeed do exclude workers. They, too, resort to hiring temporary workers who are excluded membership. They too have globalised their business into the developing world and not included those foreign workers as co-op members. A study of Mondragon subsidiaries in China comparing co-op-owned factories with foreign-owned capitalist firms found that pay was low, hours long, and conditions harsh. Just like their capitalist competitors, Mondragon co-ops invested in China to manufacture labor-intensive goods cheaply and to be near emerging markets – a strategy coop members accepted when they voted to pursue an international strategy. You mentioned in another post about the ethical stance Mondragon takes in defence of jobs and opportunity yet let's be clear, co-op members in the Basque region voted to pursue an international strategy to employ low-wage workers with no such security. By the mid-1980s it had become apparent to Mondragon’s that many of its products were in direct competition with other multinational companies. Since re-tooling their company to make other products would be difficult and costly, it was decided that the company would instead adapt to current global practices rather than dramatically change their own products. Ask yourself this. Does job security, decent pay, and workplace participation in the Basque country rest upon exploitation elsewhere?


Worker cooperatives are of some value. Because the employees collectively own the Mondragon cooperatives, the jobs won't be moved out from under them to some other country. This is why the United Steel Workers bureaucracy has recently announced they are going to build Mondragon-style coops in the USA. They are not trying to empower workers to actually control them. Their idea is that the union would organize the workers and have a contract with management but the firm would be prevented from running away because all the employees own it and there is an annual general assembly to decide major issues (like shutdown or relocation).

While this pay differential may not be as large as most capitalist companies, it still exists. In addition, not everyone who technically works for Mondragon actually has a vote - in some cases, the Mondragon the organisation acts as the capitalist, hires non-voting wage-labour workers, and extracts their "surplus value" because they are forced to operate within capitalism. Capitalism firms offer major perks to engineers and financial experts to attract them. Because education is a public good, capitalism tends to restrict its availability and this makes expertise scarce.  So a cooperative that wants to hire people with marketing savvy, engineering expertise, etc. will be under pressure to match the perks they can get in capitalist firms. So the Mondragon cooperatives operate with much the same internal hierarchy and division of labour as a capitalist firm. It is could be possible to form a cooperative that is more collective and less hierarchical than the Mondragon coops, but it will depend on the political values and commitment of the founders, and also on continuing internal education. Education would be important as a way to develop skills of workers.

The reason for the idealisation of the Mondragon model is a belief that anarchism/socialism/communism is simply a change in administration. Since Mondragon gives the appearance of worker-control it must be well down the road to liberation and emancipationn, right? This shortsightedness on administration is what many have in common with many syndicalists who switched to Leninism believing the myth of all power to the soviets.

Workers management under the revolution in Spain in the '30s has nothing in common with the Mondragon cooperative. Workers self-management in the '30s was part of a movement to destroy capitalism and replace it with a socially planned, self-managed economy, in which workers would be in charge. The Mondragon cooperatives had a more limited purpose, as a means to national economic development for the Basque nation. And the local church priest’s underlying motivation was one of class collaboration being a member of Catholic Action with an ideology that was anti-class war which was the reason that Franco actively fostered Mondragon’s growth. There was no socialist/anarchist path being taken. The "sanctity" of private property nor the power of the State never appears.

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