Mondragon: Keeping in Order to Give More

Kevin J. Jones

Junior Seminar

April 29, 2000

During the great ideological clashes of the mid-twentieth century, democracies, fascist states, and communist dictatorships razed half the globe in political, economic, and military battle. The Iberian Peninsula, no exception to the global epidemic, found itself bloodily engaged in this conflict in the tragedy that was the Spanish Civil War. Liberal theories, ranging from representative democracy to totalitarian communism, found themselves on the losing side; Falangism, not much of an economic theory to begin with, was sandwiched among the various supporters of Franco. The economic policy of Spain was based entirely on the sympathies of Franco and his regime, electorally unchallenged in its day. Picking up the pieces of Spain’s economy, no easy task, necessarily involved extremely localized non-political reforms.

In the year 1941 at the village of Arrasate in Basque Country, an educated priest named Jose Maria Arizmendiaretta arrived to find that working class activism was still active, despite the previous decade’s defeats and suppressions of the labor movement. Arizmendiarrietta (whose lengthy Basque name is usually shortened to Arizmendi) had originally arrived to be spiritual advisor at an apprentice school. Convinced that the area’s vibrant working class could channel its energy for the benefit of all, Arizmendi began agitating for more vocational and technical education in the area. He succeeded in setting up the Escuela Politecnica School in 1947, after various citizens pledged money and other resources for the attempt.

Arizmendi had long since begun holding meetings to discuss the principles of just economies, many attendees being local workers or students at the technical school. Basing many of their discussions on the social teachings of Pope Leo XIII and papal encyclicals such as Rerum Novarum, they explored alternatives to the contemporary, semi-authoritarian economic system. Prominent in the thought of Arizmendi was the imperative of avoiding class warfare rhetoric. As his biographer would later write, "At the root of the class struggle can be found the myth of revolution, faith in violence, etc., that in the opinion of Arizmendiarrietta characterize the twentieth century, and that he summarily rejects. The question of the class struggle is phrased, for Arizmendiarrieta, as the question of how to overcome it, urgently." Such an approach had not only the benefit of avoiding the ire of Francoist officials; it also reversed the century-long ideological split between workers and the "capitalist," owning class. For in their initial endeavors, the small discussion group discovered a solution now obvious in hindsight: by combining the worker with the owner, class tension ceases; and when that tension recedes, the class war dissipates.

Basque culture had a long tradition of co-operative companies, dating far back to the medieval guild system. However, during the nineteenth-century expansion of industrial capitalism, that tradition was largely subsumed into foreign-owned companies. Of the few remaining non-capitalist enterprises, most were centered upon a hierarchical system all but indistinguishable from the owner-worker standard of absentee landlords. Taking note of this phenomenon, Arizmendi also theorized that "as absentee control of the co-operatives increased, their autonomy and distinctiveness were lost." Conceiving a theory is, of course, much less difficult than putting it into practice. Having raised approximately 11 million pesetas from the local community, and joined by twenty-four local men, this core group began a worker-owned, worker-operated company. Its name was taken from the Spanish appellation for Arrasate: Mondragon.

These chartered worker-owners, known in Spanish as the socios, enjoyed the full benefit of ownership, while not in any way absolved of the responsibility of the employee. Purchasing a stove factory, they set to work. One founder later commented, ‘this was no ambitious and well-considered project; what we needed was to start with something, to wake up, and to see what would be the outcome." Their first outcome, some four years later, was a major crisis of capital. Lacking a stream of constant, profit-seeking investors, the Mondragon Co-operative Corporation, faced a severe financial crisis during the waning months of 1959; the co-operatives themselves were forbidden by law to use what little property they possessed as collateral in loans, and often faced difficulties purchasing new equipment and hiring managers. As these problems faced all Basque co-operatives, they each grew closer while attempting to solve them.

This growing relationship generated the idea for the Caja Laboral Popular(CLP), the People’s Savings Bank, the corporation’s lifesaver. As a credit union, it served the Basque community as well as the corporation; most importantly, it provided a much-needed flow of capital to the co-operatives. Finally, it filled a gaping hole in Mondragon’s worker-owner system: community welfare. As the socios were considered self-employed, they were barred by law from social security systems, and often pressed for funds during sickness; the CLP served as a safe investment for workers’ "rainy day" funds.

The gradual expansion of the co-operatives is reflected in the growth of socios. Two years after its initiation, Mondragon boasted 143 worker-owners—nearly a 600 percent increase in membership. This is remarkable, considering that these socios initially had to invest one years’ worth of salary to join, years before the CLP offered low-interest loans for the purpose. After the formation of the CLP, individuals were given investment accounts, which grew and shrank based upon the performance of their respective co-ops. Taken by itself, such an investment is a high-risk activity; should the enterprise fail, the worker-owner is left with nothing. Happily, this is a rare occurrence: out of the hundred co-operatives begun under the Mondragon umbrella between 1956 and 1982, only one suffered failure. Such a system of worker investment appears to carry more benefits than risks; rewarded by group profit more than the average, non-co-op employee, it is in the interest of each worker-owner to labor harder. This is reflected in economic studies of Mondragon, which state that the co-operatives are 7.5% more efficient than equivalent large businesses, and forty percent more effective than small and medium-sized businesses. Spanish business remains extremely sensitive to fluctuations in the economy, and Mondragon is no exception; nevertheless, in times of economic recession the Basque co-operatives tend to have lower unemployment figures than capitalist enterprises. Those unemployed in times of slow work still retain their status as owners, and all the dividends on their investment.

The administrative layout of the co-operatives, a scheme that has continued to this day, is based upon the sovereignty of labor principle. Socios exercise full control over the corporation’s management via a General Assembly, which holds mandatory annual meetings. At these congresses the worker-owners elect men to the Consejor Rector, the governing and directing council for the corporation. This board in turn elects the managers of individual co-operatives, a form of representative democracy developed to counter excessive zeal on the part of socios firing the manager at every turn. To attract highly skilled members of the managerial class, it is necessary to pay them wages close to the mainstream equivalent. To safeguard against animosity between workers and management, the pay scale was fixed at a 3:1 ratio: the management could receive no more than thrice the dividends of the lowest-paid worker. In recent years, however, wider market pressures have forced this ratio to 4.5:1, and most local co-ops wield the option of a 6:1 pay scale, to the chagrin of the old-line co-op supporters.

For labor concerns, such as workplace safety and labor requirements, a locally-elected social council, the consejo social, is available; the president of said council works together with the manager in determining co-operative policy. With recent expansion, the difficulty of "hierarchical distance" comes into play: space between bottom-level worker-owners and upper management increases to such a point that inconvenience and frustration is the result. In addition, the ratio of worker-owners to working non-owners has grown significantly. 1992 figures reveal that, out of twelve thousand employees, only half were full owners. Sensing these threats to their way of work, some co-ops have voted to remove themselves from the Mondragon umbrella, in hopes of acquiring more personal control of their businesses.

Many factors contributing to Mondragon’s success are cultural in origin: the Basques, being incredibly nationalist, are reluctant to buy from foreign, even Spanish, companies. Their discontent with Spanish rule in general led to a detestation of Francoism in particular, and Mondragon proved an outlet for their frustration; anarchist opponents of nationalism long held the area, and many were sympathetic to their cause. The very form of Basque Country, rocky and poorly developed, also tends to favor small, independent towns capable of managing themselves. Still a largely traditional society, Basque workers also rely upon strong support from the home—non-employed wives maintain the household and raise the children. This meets with harsh criticism from leftist analysts, as they assume such a situation to be the requirement only of oppressive capitalist systems. Most Basques are reluctant to leave their homeland for employment purposes, as their lifelong friends and family would remain. One researcher, upon asking a woman whether she would ever move to the Spanish capital, received the querulous reply: "Me? Move to Madrid? With whom would I drink?" In recent decades, careerist and consumerist impulses have become prominent; the resulting individualism, long a plague of the West, tends to downplay the values upon which the co-operative system depends, and these new worldviews may threaten the survival of the co-operative enterprise.

The role of the Spanish political system has had mixed effect on Mondragon; some government policies have obstructed the growth of the co-operatives, like the aforementioned social security problems, while others have contributed to its success. The Spanish economy enjoyed protective tariffs until 1992, ranging from eighteen to thirty-five percent on imported goods. Recent policy has shifted to a free-trade economy with open borders, in response to European Union dictates; effects of this change are unknown as of yet. Mondragon itself is adapting to the open economy, purchasing capitalist firms overseas and hiring contracted, temporary employees when needed. This has generated many critics, who see such efforts as the compromise of Arizmendi’s ideals.

Indeed, one would do well to make a review of these ten co-operative ideals still present in the corporate charter: open admission, democratic organization, sovereignty of labor, the instrumental nature of capital, self-management, solidarity, group co-operation, social transformation, universality, and education. Most characteristics are already covered above, though some explication is needed. Admission is non-exclusive, so long as one accepts basic co-operative principles; the only prohibitive requirement is the initial investment, though the requisite funds are loaned from the CLP more often than not. Emphasis on the sovereignty of labor and the instrumental nature of capital precludes any excessive pursuit of profits; solidarity further counters the remaining class war sentiments, emphasizing self-reliance and collaboration. The last three points advocate the widespread co-operative position that a change of culture is needed for their efforts to truly bear fruit, echoing the words of American activist Dorothy Day, who wrote that "The greatest challenge of the day is: how to bring about a revolution of the heart"

Criticisms of the Mondragon Project include the voice of Noam Chomsky, who enjoys a near-magisterial position for most thinkers of the left. Acknowledging the co-operatives’ successful survival in competition with more capitalist systems, he opines that the corporation’s democratic system is just as noncommittal to sustainable growth as one of a top-down hierarchy. More critical is Sharon Kasmir’s iconoclastic The Myth of Mondragon, which claims that the corporation packages and markets co-operativism as a convenient advertising campaign perpetuated by so many worthless academic hacks. Though cynical at first glance, some of her points are not off base; recent trends reveal a form of "social engineering" within Mondragon’s educational system that turns the project’s ideals into "being a good worker," rather than enforcing the status of the socios as owners. The sovereignty of labor and the instrumental nature of capital appear to be losing in the war of ideas, though recently some co-operatives have seceded in an effort to regain their institutional integrity and to preserve the traditional emphases on locality and Basqueness.

Interestingly enough, criticism from the Right side of the political spectrum is lost in all this flurry of suggestion and intimation; few critiques are available. However, one would think that key factors such as lack of government intervention and freedom from economic coercion, long-time conservative ideals, would make Mondragon quite appealing to thinkers of the right. Moreover, its creative method of avoiding "class war" rhetoric appears to counter the ever-so-many leftist polemics against the free market system. Finally, the sheer profitability of the Mondragon venture should attract notice to those of only a fiscal mindset.

This, then, may be the saving grace of Mondragon: by proving that co-operative principles can be productive and profitable, it has done much far advancing the cause of labor, while simultaneously shedding the somewhat servile nature of labor unions. By not answering the radical calls for revolution of anarchism and communism, the co-operatives Mondragon’s approach is not what Chesterton called the desire to preserve old mistakes, an uncritical conservatism, nor is it the desire to go on making new errors like some forms of progressivism. Rather, it forces the tired false dichotomies of the age into open view, for all to see. And to see is the best path towards correction.

Annotated Bibliography

Cheney, George. Values at Work: Employee Participation meets Market Pressure at Mondragon. Cornell

Univ. Press: 1999.

Hacker, Sally. Pleasure, power, and technology: some tales of gender, engineering, and the cooperative workplace. Boston: Unwin Hyman, c1989.

Kasmir, Sharryn. The myth of Mondragon : cooperatives, politics, and working-class life in a Basque town. Albany: State University of New York Press, 1996.

Logan, Chris, and Thomas, Henk. Mondragon : an economic analysis. Boston : G. Allen & Unwin, 1982.

Morrison, Roy. We build the road as we travel. Philadelphia, PA : New Society Publishers, c1991.

Various primary sources are here at the corporation’s home page.