Why Mondragon?

What is a co-op?

A co-op is a group of people who come together to serve a purpose and who agree to govern themselves according to the principles of democratic participation. The goal of a co-op is to provide for some human need while at the same time creating a viable livelihood for its members. Realizing that value comes from human labor, a co-op naturally seeks to use its members’ labor well – not to waste effort. Co-ops act on what Thorstein Veblen called the instinct of workmanship – the natural human propensity to do things well. Recognizing that we exist in relation to others, co-ops also seek to create flexible work arrangements in order to allow their members the opportunity to care for others – their children, their elders, their neighbors and friends. And also to have time for reflection, creativity, worship and play. Co-ops seek, in other words to allow their members to realize their full human potential, through creative work, active participation in decisions and fulfilling relationships.

How can co-ops flourish?

The question naturally arises: why are co-ops not more prevalent? One common response is that they are more wasteful than authoritarian enterprises; that we need a strong leader to take charge, make decisions, to tell us what to do. Only then can we effectively compete in a global marketplace. Of course a democratic organization of work is threatening to powers that be in business and in government and every effort is made to disparage the idea that people can effectively come together to make decisions and organize their work lives. People who study co-ops, however, consistently show that this type of organization is, in fact, more efficient, mostly for two reasons. People are naturally motivated to work hard when they have a stake in the enterprise – this dedication and effort results in better products at lower prices. Second, much effort is wasted in authoritarian firms trying to monitor and manage people because they are excluded from decision making. When people are included this otherwise wasted effort is instead directed toward investment and product development and firms are much more successful.

All that is really needed for co-ops to flourish is this: a thoughtful consideration of the scale, scope and design of the co-op in order to avoid difficulties that naturally arise when people try to work together; a careful thinking through of the interrelationships among different types of co-op enterprises, be they manufacturing, financial, retail or service in order that these various types of enterprises might work together instead of being, as we currently see, at odds. In our economy while the first condition is sometimes achieved the second has not been and as a result worker co-ops are not prevalent. An example of how each of these two requirements for success in co-operative endeavors can be realized may be helpful to illustrate what needs to be done.

The Mondragon Co-ops

Mondragon is an example of a highly successful system of co-ops that has managed to realize these two important elements of co-op success. Each individual co-op is organized in a way that allows each worker to have a say in the decisions affecting the enterprise as well as having a say in the policies and regulations by which each of the co-ops abides. In so doing, Mondragon has created a highly flexible and effective organization of work. Instead of paying inflated salaries for executive officers, the workers in the co-op themselves elect managers to make decisions concerning the operation of the enterprise. These workers gather prior to their work hours, make the necessary decisions and then return to their positions as workers in the enterprise. In this way their experience on the shop floor informs their decisions as managers. They do not receive additional compensation for this effort but are rewarded, instead, by the additional responsibility and satisfaction associated with contributing to the firm. These savings accrue to the firm and add to its competitiveness.

Workers, as owners of the co-op, receive their dividends in the form of supplements to their stock ownership; in other words, a considerable part of the earning of the co-op is retained within the firm as equity and is therefore available to the firm for re-investment. Instead of having to pay outside investors, workers essentially pay themselves and these earnings remain available to the co-op until the worker retires and withdraws his or her investment in the form of a (surprisingly considerable) nest egg. Rules concerning payments for work, ownership, governance are discussed and modified by a general assembly of all workers in the co-op system.

Of course, it is natural for disagreements to arise whenever people act together to achieve some common purpose. In order to ensure these disagreements to not come in the way of the co-ops success, a number of further arrangements are needed. The co-ops are prevented from achieving a size that would interfere with co-op members being able to know each other and to develop some loyalty or affection for one another. The current limit of 500 employees, about the size of a small high school, allows for people to know each other. Successful co-ops that grow beyond this size are split into separate enterprises in order to avoid becoming too large to operate co-operatively. In addition, each co-op elects a number of workers to represent their interests to the elected managers, in case those managers fail adequately to take into account the implications of their decisions on the other workers.

Perhaps most importantly, workers attend schools that are based upon and teach co-op principles of cooperation. Without a commitment to cooperation, experience in cooperative learning environment and knowledge of cooperative principles workers are ill equipped to handle the challenges of self-government. But the Mondragon experience shows that when these conditions are provided, workers are more than able to handle the demands of competing in the global marketplace. Over the past sixty years, the Mondragon cooperatives have grown in size from a small handful of co-ops to represent an entire regional economy. They have yet to experience a single co-op failure. This remarkable record is largely due to the way the various co-ops within the system are designed to be mutually supporting, always striving for win-win solutions to the problems they encounter.

A key element of the interrelationships of the various types of co-ops (industrial, financial, retail and service) involves the representation of a wide spectrum of stakeholders on the managing boards of the various firms. The managing board of the bank, for example, in comprised of bank workers but also of workers from the industrial co-ops that they are designed to serve. The earnings of the bank workers depend in part of the profitability of the bank and thus the interest charged to the industrial co-ops for loans. The interest rate is itself tied to the profitability of the industrial co-ops; hence, if the industrial co-ops succeed, the bank workers also succeed.

To this end the bank has created a consulting division which meets with workers who wish to start a new co-op venture. Though a process of planning and problem solving the bank assists the co-op and continues to meet with its board of managers regularly over the first few years of operation in order to overcome any initial difficulties. The success rate of new co-ops is therefore due in great part to an alliance between industrial and financial capital that is quite strikingly different from what is found in authoritarian firms whose success is often linked to the demise of other enterprises. Similar relationships exist between industrial and retail co-ops.

A similar commitment to balancing the needs of the workers and the needs of its clientele exists in the other non-industrial co-ops. The managing board of the university is comprised of its workers but also in part by students in part by representatives of the other co-ops who require educated workers. Students work half-days in industrial co-ops and half-days in study in order both to help finance their education, but also to gain experience working in a co-operative enterprise. Workers who require retraining are paid to attend classes to obtain new skills, as are workers who are laid off as a result of the contraction or restructuring of a particular co-op. By directing the efforts of the educational co-op to the needs of the co-operative system, workers do not bear the burden of educational debt nor do they experience a loss in their livelihood due to unemployment. Instead the co-op system acts to provide opportunities for workers to advance and a strong safety net in the event that circumstances preclude workers from supporting themselves.

Health care, insurance, day care and other social services are organized in a similar manner, the principle being that those who are providing these services and those for whom the services are intended should act together to determine the policies and to manage the enterprises for the good of all concerned. In the authoritarian economy, in contrast, workers are excluded from participating in these decisions along with other important stakeholders. Managers are legally obligated only to serve the interests of the shareholders (although the managers own interests are rarely overlooked). Authoritarian firms thus externalize costs onto those who are unrepresented and internalize the benefits to those who already enjoy considerable wealth and privilege. It is no wonder that the authoritarian economy so successfully reproduces poverty and want, ecological collapse and the waste associated with planned obsolescence and conspicuous consumption.
Are co-ops the way forward?

I do not mean to suggest that co-ops do not also have their difficulties. In any co-operative enterprise there is a tendency for a core group of individuals to coalesce and attempt to have their interests prevail. Work may be specialized and monotonous and it may be difficult to distribute tasks in an equitable way. In Mondragon, co-ops have outsourced work to low wage countries in order to compete with authoritarian firms and the co-ops have been unable thus far to operate these firms as co-ops. To their credit, Mondragon is trying to overcome this obstacle by exploring the possibility of developing co-operative education centers in these low-wage regions. The continued success of the Mondragon co-ops however, belies the claims of those who say that co-ops are not a viable or desirable means of organizing our work effort. To the contrary, co-ops provide for the needs of their members because they are designed and directed to meeting these needs, rather than the needs of shareholders. That is the key difference and that is why co-ops continue to be denigrated, discouraged and ignored by those who favor an authoritarian economy.

The authoritarian economy may get back on its feet; it may resume its exploitation and disenfranchisement of workers, its rape of the ecosystem, its provision of mind-numbing tasks and its tireless destruction of relationship and community. It may even manage to do so in a less harmful and destructive way. But as long as work is directed in the service, not of workers, but of shareholders, as long as people are systematically excluded from decisions affecting their lives and their livelihoods, we will not have achieved the full measure of our humanity and we will continue to suffer for it. Joining a co-op may not be sufficient to bring the economy to sanity but it is most certainly a necessary step.