COMMUNITY ACTION A Spanish success story
iViva la co-operativa!
Nothing like the Mondragon system of co-operatives has ever happened before, anywhere. It includes a growing number of industrial firms, savings banks, schools and colleges and a research and development centre. All add up to prove that there is an alternative to stifling and inefficient state collectivism on the one hand and the cruel logic of profit maximisation on the other. Dominic Flassati traces this astonishing development from the unpromising roots of Franco' s Spain.
ON A FOGGY winter’s day last year I drove out of Bilbao and headed for the mountainous interior of the Basque country. Bilbao is one of Spain’s greatest industrial centres and I passed many factories. Several of them had angry-looking pickets round their gates, watched by police with machine-guns. Lock-outs and pre-emptive strikes are common in Bilbao’s steel plants and shipyards as firms suffer the same slump as the rest of Europe. Once again workers were confronting owners in a mutually destructive struggle.
I was glad to get out into a countryside dotted with family farms. Forty miles from Bilbao I climbed a rough zig-zag road to a pass, then dropped down to a small town sprawling in the valley under heavy mist — Mondragon.
Here I hoped to find material for a film about Robert Owen, the nineteenth century British industrialist, who wanted to reform the evils of the Industrial Revolution and create a new society. In his cotton mill he had promoted industrial efficiency and the welfare of his workers. He set up a school believing that through education people would eventually be able to govern themselves in prosperous co-operative communities.
In the rising tide of working class consciousness in the nineteenth century many more co-ops were founded, but most have decayed or collapsed. The major survivors have been the consumer co-ops, prosperous retail chains doing little to alter the structure of capitalist society.
They are not a compelling model as an alternative to either capitalism or state collectivism, to the endless struggle between management and labour.
Then I heard of Mondragon — as offering precisely that alternative.
So here I was bumping through some rather ugly streets until I saw the sign I was looking for — Caja Laboral Popular — the working people’s bank, headquarters of the Mondragon co-ops. There are over 80 industrial co-ops in Mondragon and the surrounding Basque country. Most normal co-ops are small and labour intensive. In Mondragon they are capital-intensive, and some are very large. One, called ULGOR, has 3,400 workers in six factories. It is Spain’s largest manufacturer of household appliances. Off its production lines roll 300,000 refrigerators a year (a quarter of Spain’s demand). 100,000 wash-machines and 225,006 cookers — as well as spin-dryers and water heaters.
The 80 co-ops make a vast range of goods — from agricultural plant to plastic components, from excavators to bicycles, bus bodies to household furniture, fancy goods to replica antiques. There are co-ops that build bridges.
Altogether they employ over 17,000 workers — but that’s the wrong term: you could equally say 17,000 owners because each member owns a share of his co-op’s capital and plant, of the means of production. And he — or she — has an equal say in electing the firm’s directors; indeed he or she may be one of those directors.
The industrial co-ops are backed by others providing services which ensure their success. There’s a co-op bank — the Caja Laboral Popular — which supplies them with development capital. The bank has branches in every Basque town and village. It is able to attract small savings by offering a slightly higher rate of interest than ordinary banks and now has 300,000 deposit accounts. In 1979 it attracted $500 million.
All this has developed since 1956 when the first co-op, ULGOR, was founded, but the roots go back further — to 1941. Mondragon was then a village of 5,000 souls, just recovering from the civil war which between 1936 and 1939 devastated Spain, leaving hundreds of thousands of dead or disabled and the economy in ruins.
One of the soldiers in the Basque militia that fought against Franco was a student priest called Jose Maria Arizmendi. He was captured by Franco’s army and spent some time in gaol waiting to be executed. Luckily he escaped and returned to his seminary to be ordained a priest. In 1941 he was sent to Mondragon as curate. In the seminary he had studied Catholic social doctrine which rejected the views of Adam Smith, the theorist of laissez-faire capitalism, and those of Karl Marx, the prophet of revolution and state collectivism. Catholic doctrine sought a third way which would achieve social justice while preserving individual property and freedom.
With those principles Don Jose confronted the poverty and unemployment in Mondragon. He started a technical school open to all local boys. He believed that knowledge was power — the key to a prosperous and classless society. The underprivileged must raise themselves by their own efforts.
The school was financed by the people of Mondragon. Out of its first class about a dozen went on to become graduate engineers. Five of these — poor working-class boys —were to play a key role. They worked in the metal factory, and true to Don Jose teaching asked the management to introduce a degree of worker participation. The management refused, saying it could not prejudice the rights of shareholders.
Frustrated, the five left and started their own factory in 1956. About 100 villagers lent the money to build it. They called the firm ULGOR, a name coined from the initials of their surnames. At first there was work for 24 men and 2 women making a kerosene heater of British design. They also made kerosene cookers. Other models followed. All sold well. Spain was beginning to recover. By 1959 there were jobs for 100. Working hard, they expanded the factory, but to expand further, they realised they would need some kind of structure.
They turned to Don Jose. He recommended that ULGOR should adopt a cooperative structure, and he helped draw up the rules.
The firm is owned by the workers. At least once a year they meet in a General Assembly which wields supreme power. On the basis of one worker, one vote, the Assembly elects a Board of Directors to which it delegates the power to decide policy. Board members are elected for four years, half being replaceable every two years. I attended a typical board meeting. There were nine directors — a cross-section of the co-op’s 1,000 workers. They included a personnel manager, a quality-control inspector, a secretary, and two shop-floor workers. No-one is paid extra fees as a director. The meeting was at 7 a.m. At the end they hurried back to work.
The co-op’s general manager was also there — to listen and to advise if called upon, but he had no vote. The board discussed many aspects of the co-op’s policy and made decisions which the general manager would have to carry out. It he failed, he might get the sack. Mondragon co-ops do not tolerate slack managers.
Dominic Flassati is the producer of the British Broadcasting Corporation television film ‘The Mondragon Experiment’, available from BBC Enterprises., The Broadway, London W5 2PA.
General Assembly meetings for co-ops as large as ULGOR are held in the football stadium! Debates can be long, well-informed, and critical.
The ownership arrangements devised by Don Jose are ingenious. Each member on joining has to make a capital contribution of $4,000. If necessary he can borrow this from the co-op bank at favourable rates — like a house mortgage. This capital holding remains his property. Each member is paid a monthly salary — the going rate for the job in the Basque country. The greater the job responsibility, the larger the salary, but the highest paid never gets more than three times the lowest. This rule was one of Don Jose most daring and important contributions.
If the co-op makes a loss, 30 per cent is absorbed by the co-op’s collective reserves but the balance is taken from the capital holding accounts of the individual members. One result of being an owner is that you take your own risks. But the all-round benefits can be impressive. People leaving the co-ops, with 15 to 20 years service, are taking out accumulated capital holdings of around $40,000 in addition to their pension.
The Co-operative Technical College, derived from the original school of 1943, which now occupies a large campus has 1,200 students. It now includes a university for engineering and chemistry. About 500 senior students earn their keep by working in a special students co-op on the edge of the campus. It makes components for ULGOR and other industrials. Students work half the day and study the other half. They own a share in the co-op and withdraw it when they leave.
The investment in education ensures a steady supply of trained personnel for the existing industrial co-ops and for the new ones which are being founded. To launch new co-ops — to create new jobs— is regarded as a main commitment to the community. On average five co-ops are started each year. To ensure their success in a highly competitive world, the Bank has a special managerial division. This can advise a group of workers who wish to start a co-op as to what sort of product might find a profitable market It will find land, and design and build a factory for them. It will help recruit and train further members. They have to find only ten per centof the capital; the Bank supplies the other 90 per cent and will even second some of its expert staff to tide the new co-op over the difficult launch period. The system is so good that of the 80 co-ops set up so far not a single one has failed.
The co-ops run their own insurance service. It’s called Lagun-Aru and it provides a full range of welfare benefits — from child allowance to old-age pensions — for workers and their families, 45,000 people in all. And recently the co-ops set up a research and development institute, at a cost of $11 million: it is staffed by 36 scientists who tackle problems for the industrial co-ops as well as doing fundamental research into solar energy, for instance, or industrial robots.
Studies by outside economists have shown that the productivity of the Mondragon worker is the highest in Spain — higher than in the largest and most efficient capitalist or nationalised firms. Sales are running at around $800 million a year, many of them abroad. The net profit on sales is twice as high as in Spain’s capitalist firms.
Economist Keith Bradley, has concluded that this higher efficiency is a direct result of the co-op structure. He found an unusual degree of consensus between Mondragon managers and workers. The workers feel the managers are serving their interests, and this consensus is reinforced by the fact that workers and managers all live in the neighbourhood of the co-ops and that the workers do not perceive any social difference between themselves and the managers. Moreover, the workers are self-selected people: after all they have made a financial sacrifice in putting down their initial $4,000, so they are highly motivated, able to supervise the amount and quality of their output.
The fact that 90 per cent of all profits are retained in the firm — as either individual or collective capital — also gives the co-ops a competitive edge over capitalist firms. In the recession now hitting Spain, Mondragon has not yet sacked a single worker. If workers become redundant, they are sent back to the Technical College for advanced training in subjects like automation. When business picks up, they may go back to their factory. If not, they will be found jobs in a new co-op starting up in a more profitable field.
When Don Jose died in 1976, he was still the parish curate but he had proved that the problems thrown up by the Industrial Revolution in the nineteenth century can be solved in the twentieth by applying the ideals of Robert Owen; and he had proved it with the help of ordinary working people educating themselves for the task and providing their own leadership and capital to carry it out. As workers and owners they are masters of their economic destiny, owing nothing to outside shareholders or to the state. They have abolished the distinction between capital and labour.
Why have the MONDRAGON co-operatives succeeded?
In many ways Mondragon is unique — but there are also important lessons for other co-operative ventures. Our summary of the vital ingredients:
• The comparative isolation of Spain under Franco in the 1950s, together with post-war economic growth, offered a protected and expanding market for the sale of their consumer products.
• The Mondragon system has triumphed over the shortage of investment money which nearly always hampers such co-operatives (see The Crippled Giants page 18). It is not dependent on private banks or government subsidies: 70 per cent of all surpluses are distributed to worker members by being credited to their co-operative bank account at the Caja Laboral Popular. This blocked account money is for reinvestment in new machinery and loans for the founding of further co-operative factories.
• Basque attitudes towards manual labour are healthy, nothing like the hidalgo spirit elsewhere in Spain which is contemptuous of physical labour. A further Basque characteristic which has helped is the respect for social equality and the ‘associative spirit’ found in thousands of small dining-out groups.
• The co-operative bank has a planning organisation for the deployment of its funds, not lending where profits can be maximised although the lenders projects have to be viable, but where there is a strong determination of a group of people willing to sink some of their own savings into a projected enter prise.
• The spirit, advice and influence of the founding father, padre Jose Maria Arizmendi was central to the enterprise. His philosophy of priding himself on never making decisions for others and refusing to centre institutions on himself, encouraged others to think and act for themselves. So the co-ops have never been dependent on one personality for their survival, development and expansion.
• The ‘cloning’ process, or establishment of spin-off firms has stopped successful groups from becoming too big. Instead of expansion of the prosperous factories, most have been split up to retain friendly worker-management relations.
• The founding of mutually supporting organisations has avoided failures through isolation. Education at the technical college, sympathetic banking advice and loans, advanced research groups and factories, the skills, experience and knowledge of each group are fed into others.