Lessons from the Mondragón Cooperative Movement

Introduction

The Mondragón cooperative movement in the Basque Country has been captivating a select group of interested parties for decades. In the context of contested global capitalism, the community functions as an Asterix village. The term “village” is an understatement—it involves more than 200 cooperative enterprises with a total of more than 80,000 employees, of which a large part are actually cooperators.

All cooperatives are financed with deposits from the employees, who thus bear the financial responsibility and risk. Each cooperator has voting rights at the annual board meeting according to the principle of “one man, one vote.”

Furthermore, the group has its own bank and insurance institution, and Mondragón University is affiliated with the cooperative complex. This ‘three-in-one’ concept (the enterprises with credit provision and education in the 2nd line) is the trademark of Mondragón (Lotens, 2013: 139), which distinguishes it from other cooperative initiatives, such as in Emilia-Romagna (Caselli et al., 2022).

The fact that this project has been standing for decades is a sign of its resilience and validity. In addition, it is the size, the interconnectedness, and especially the infrastructural embedding that make the Mondragón model interesting as an alternative organizational concept to the traditional capitalist organization models (and, as such, an interesting case in general, especially when compared to, for example, Emilia-Romagna, where the large group of cooperatives in the region are less interconnected).

The question is whether Mondragón actually offers an answer or (partial) solution to the harmful aspects of capitalism and prevailing neo-liberalism that we witness every day.

Dysfunctions of capitalism

On a daily basis, we are confronted with the dysfunctions of capitalism. And these dysfunctions can be described along three lines.

• The alienation and powerlessness of workers which result from the heteronomous character of labor (Gorz, 2013), the instrumental work orientation, the profit ambition of the private enterprise, and one-sided calculations on return. Symptoms of this, such as dropout and burnout complaints, are still increasing (Kroft & Venema, 2019).

• Growing income inequality. The number of millionaires or billionaires is still growing proportionally.

• The individualization of society. Individualism and egoism are promoted by systems or living environments that stifle participation. This is, usually, rooted in a monomaniacal focus on cost (reduction), instead of quality in all its forms.

These dysfunctions are reflected in the labor relations in which employees are largely reduced to wage slaves. On the agenda of the trade unions and political parties, aspects of fair wage policy and work guarantees tend to dominate. Meanwhile, the content of the work, the control, and the say over it seem to have disappeared from the agenda.

In this exploratory essay**, we argue that the case of the Mondragón cooperative movement can give us information and inspiration for developing ideas about how, through business democratization, labor relations can be improved in order to address the dysfunctions of capitalism and neo-liberalism. The survival and sustainability of the Mondragón project, now going on its sixth decade, proves, in a certain sense, the economic benefit of the model.

• First, we will discuss how the cooperative movement of Mondragón gives shape to business democratization.

• This will be followed by an evaluation with both positive and critical comments.

• Finally, we conclude with the lessons we can draw from this for improving labor relations.

The cooperative movement of Mondragón

At the basis of the cooperative movement of Mondragón stands the priest José María Arizmendiarrieta. Against his will, he was sent to the parish in the Basque village in 1941, where he was confronted with social and economic misery—that is, a lot of unemployment and pent-up anger. This drives him to make the village a coherent community based on the collective participation of all, combined with collective responsibility. With this, he builds on the latent still-living Basque culture of cooperation.

He considers a positive work mentality (forged at a young age) with an accompanying business economy of vital importance, which is why Arizmendiarrieta founded a polytechnic school in 1943 with money from the villagers. Later, this grew into Mondragón University. The democratic setup of the school is now considered the seed of the cooperative movement. Over time, he selected five pupils, who jointly set up the first cooperative in 1956. After that, many other cooperatives followed, and Mondragón grew into a corporation of more than two hundred and fifty cooperatives and more than eighty-three thousand employees (VPRO Tegenlicht, 2012).

Each cooperative is organized in a similar way (Coöperatie expert, s.a.). After two years of normal employment, the employee is offered to become a socio (member), or cooperator. The alternative is the termination of the contract. To become a member, €15,000 must be deposited. There are payment arrangements for this, for example, by withholding salary in installments or borrowing money from the bank of the Mondragón corporation (the Caja Laboral Popular). The invested capital is paid back at retirement or departure. Each member may participate in the General Assembly, where the policy is established, and where the board is appointed. The depositing of capital makes the cooperator co-risk bearer of the enterprise—a form of ownership inseparably connected with co-responsibility.

Not everyone who works there is, therefore, a cooperator. In the meantime, the corporation has also outgrown the local community. Of the total employee population, an estimated 30,000 work in the Basque Country, 35,000 in the rest of Spain, and 15,000 mainly in branches worldwide. In terms of size, Mondragón, collected under the umbrella of the MCC (Mondragón Corporación Cooperativa), is in the top 10 worldwide cooperatives (Mathieu, 2020).

This extensive network of cooperatives encompasses top-tier industrial enterprises, banks, insurance firms, supermarkets, agricultural businesses, health, and educational institutions. Operating in forty countries globally, it exports goods to 150 countries (Flecha & Ngai, 2014). The Mondragón cooperative group is segmented into 14 divisions (Coöperatie expert, s.a.). Within each division, profits are redistributed to cover losses elsewhere, fostering collaborative support among cooperatives.

Backing the cooperative model are dedicated financial and educational institutions. The cooperative bank, Caja Laboral Popular, focuses on managing and planning credit provisions. Social insurances are facilitated through the cooperative Lagun Aro. The university's flagship program is LEINN (Liderazgo Emprendedor en INNovación; ‘Entrepreneurial Leadership and Innovation’). Here, students are groomed for independent entrepreneurship, resulting in the creation of ‘junior cooperatives’ as startups.

In Mondragón, a profound shift has occurred from the traditional power dynamics within the capitalist production system: ‘labor wields power, while capital functions solely as a productive factor’ (Cera Coöp, 2013). Employees, not external financiers, are the owners, exercising control over policy decisions.

In each separate cooperative, four democratic bodies can be distinguished (Latinne, 2012):

1. Asamblea General (General Assembly): This assembly comprises all cooperative members who exercise their voting rights.
2. Consejo Rector or Administración (Board of Directors): Elected for a four-year term, this board includes a president and members, of which half are elected every two years. It is accountable to the General Assembly.
3. Consejo General (General Council): This role is filled by a general manager appointed by the Consejo Rector. The general manager appoints other members of the Management Team/CEO.
4. Consejo Social (Social Council): Introduced later, this council serves as a platform to address labor-related issues. Comprised of elected representatives from various employee categories, it advises both the board of directors and the general manager, convening weekly.

At the apex of all cooperatives lies the Congreso, convening annually with delegates from each cooperative.

Becoming part of or departing from the group, which encompasses all cooperatives, is a voluntary decision. To join, aspiring cooperatives must adhere to the ‘normas del Congreso’, a comprehensive document with over 140 articles. Key provisions include addressing the wage gap, reinvesting profits, and agreeing to potential personnel reallocation among cooperatives.

Typically, departing enterprises exhibit strong financial and economic performance. Conversely, those seeking to join often face challenges, such as economic downturns. Departing entities generally opt out because they no longer wish to support less successful participants financially. Usually, they establish themselves as independent cooperatives elsewhere. The umbrella organization’s representatives acknowledge the difficulty in influencing or reversing this trend.

The benefits of the Mondragón model

The way the Mondragón model distinguishes itself from regular capitalism can be summarized as follows:

• Strategic Policy Control: The principle of ‘one man, one vote’ governs strategic policy decisions.

• Inter-Cooperative Flexibility and Solidarity: Cooperatives are committed to providing support in times of crisis or temporary downturns within the umbrella organization. The Congreso facilitates this process, allowing for quantitative flexibility. Recently, successful redistribution occurred even in the case of a major enterprise bankruptcy (Coöperatie expert, s.a.). However, this form of solidarity is waning due to members leaving the network.

• Intra-Cooperative Flexibility: Cooperatives maintain the option of implementing temporary salary reductions, a subject open for discussion at the General Assembly (VPRO Tegenlicht, 2012).

• Education and Benefits: Cooperators enjoy more educational opportunities compared to counterparts in regular enterprises. Each cooperator has access to two years of unemployment benefits if required, although this provision has never been fully utilized to date (Roeters, 2022).

• Profit Reinvestment: Profits and surpluses are reinvested internally, bypassing external financiers or shareholders. About 90% of the profit is reinvested (Lotens, 2013: 141; Poortmans, 2020; Coöperatie expert, s.a.). A portion (between 20 and 60%) is reserved for lean periods, subsidies or loans for struggling cooperatives, new cooperative startups, or knowledge development. The remaining part (approximately 30 to 70%) benefits the socios and contributes to the invested capital (Cera Coöp, 2013). Additionally, 10% of the profit supports community initiatives, e.g., funding social-cultural projects.

• Wage Gap: The ratio between maximum and minimum salaries stands at 1:6. The lowest salary currently hovers around €15,000, with the highest at €90,000. This ceiling applies even at Eroski, the multinational supermarket within the cooperative network.

This also highlights the social benefits. For every dysfunction of capitalism (as mentioned above), there’s a corresponding solution provided:

• In contrast to alienation, there is ownership. Employees are owners and exercise control and say over matters for which they are responsible. The interests of employees are defended, even if they limit themselves to job security and financial stability.

• In contrast to inequality, there is more equality. The wage gap is minimized and turnover and profit are reinvested in the cooperatives.

• And in contrast to individualism, there is solidarity. Cooperation equals collaboration, which equals acting out of common interest and taking others into account.

The undeniable economic success, crucial for sustaining employment, stands out. Over 60 years, not more than 5% of the 120 cooperatives have faced bankruptcy, a stark contrast to Spain’s enduring severe financial crises compared to the rest of Europe. Unemployment in the Basque region is notably 10% lower than the national average in Spain.

While this success may stem from multiple factors, including the historically robust Basque economy, within the Mondragón community, there are no grandiose indicators of a uniquely exceptional standard. There are no ostentatious signs, tourist attractions, or statues. Everyday conversations reveal that people consider the cooperative working method as normal. There’s a sense of quiet pride without any need for boastfulness. Simultaneously, there’s a notably introverted pride in the community, as highlighted by Hafner (2010), who notes a remarkably high level of cohesion demonstrated through communal activities such as gastronomic events, Basque pelote sports, and poetic gatherings in the eccentric bertsolarism tradition.

Comments on the Mondragón model

Despite the commendable aspects of the Mondragón cooperative movement, critical observations exist.

Kasmir (1996) in a critical study suggests that, after empirical comparisons with nearby conventional companies, Mondragón shows little deviation from ordinary capitalism. Hierarchy, leadership style, and a work-centric orientation resemble traditional capitalist structures. Democratic possibilities for socios, as envisioned through various consultation and participation bodies, are seemingly limited. According to Whyte and Whyte (1991: 229), participation tends to be more reactive than proactive, with proposals primarily prepared by the Consejo Administración, leaving little room for broader organizational involvement. This gradual erosion of democracy is evident as members grow less motivated to attend general meetings, with repeated absences facing sanctions, including wage penalties (Cheney, 1989). The cooperatives’ sizable workforce necessitates comprehensive plan presentations, leading to a significant focus on explanatory engagement in the training center (Coöperatie expert, s.a.).

Furthermore, concerns arise regarding the diversity and status of employees. Only 30% are owner-socios, with the remainder being temporary or wage laborers in foreign branches (Lotens, 2013: 141). Trade unions are not permitted in Mondragón cooperatives, justified by the cooperators being considered employers themselves, disregarding the temporaries and wage workers in branches. This absence of unions disregards responsibilities related to supervision of working conditions and labor law information, tasks that could be assumed by the social council (Lotens, 2013; Latinne, 2013). Syndical aversion is partially attributed to the influential founder Arrizmendarieta’s distrust of class consciousness, with a counter viewpoint expressed by the Basque workers’ collective ‘Ahots Kooperatibista’ through a monthly newsletter (Latinne, 2012).

Contrasting views emerge in Santa Cruz and Alonso’s (2016) defense of the Mondragón Corporation against Kasmir’s critique. They highlight strategies to convert temporary workers into cooperators and ‘cooperativize’ foreign branches, aiming to enhance economic stability and expand the parent cooperatives. Despite debates, Roeters (2022) and Romeo (2022) indicate a net increase in the number of cooperators, supporting Santa Cruz and Alonso’s argument.

Another significant critique concerns democratization at the workplace level. Mondragón, akin to regular businesses, appears to neglect labor organization. Past efforts to overhaul work systems, such as transitioning from Taylorism to autonomous groups in the 1970s, faltered amidst the economic recession. The social councils failed to advocate for maintaining the ‘autonomous groups’, focusing more on strategic entrepreneurial matters, per Whyte and Whyte (1991). The lack of readiness within the management for decentralization and power shifts further contributed to these initiatives’ failure. Presently, social workplace innovation seems sidelined within the Mondragón community, with reports emphasizing management techniques like Lean Production or Total Quality Management instead of self-management.

The attention to social workplace innovation appears minimal in recent times, with concerns raised by researchers about Taylorism-related frustration (Greenwood & González, 1992), apathy, alienation, and conflicts with technocracy (Whyte & Whyte, 1991). A ‘we and they’ culture has emerged, evident in cooperative jargon like ‘los de arriba’ (those from above) and ‘los de abajo’ (those from below) (Estragó, 2020).

Conclusion: lessons from Mondragón

The Mondragón model quietly offers an alternative to the dysfunctions of the neoliberal system. Alienation finds its counter in ownership, aligning with meaningful influence. Inequality is challenged through a minimal wage gap and profit reinvestment, while individualism is countered by cooperation and collaboration. However, it’s important not to idealize this contribution as a miraculous revelation. The story of cooperative ownership is evolving into a hybrid form where traditional shareholder-company structures dominate, yet the model’s core intentions persist. Sustainability remains rooted in the enduring intentions of Congress, particularly regarding ownership and job preservation, as confirmed by discussions with top-level informants.

A notable concern is the blind spot regarding attention to the quality of the labor organization. The principle of business democratization, theoretically offering space for social workplace innovation, remains an untapped potential. Mondragón misses the chance to distinguish itself from the bureaucratized business world, which means that alienation and frustration lurk here, too.

It’s crucial not to pedestalize Mondragón as the ultimate role model or business exemplar. Nonetheless, it offers insights and inspiration, prompting independent contemplation on how things can be improved. Similar to other inspirational examples, the advice remains: ‘not to copy, but to understand’. Empiricism provides inductive ideas while theory offers deductive logic, encouraging individual interpretations and possibilities for developing interventions to counter the dysfunctions of the prevailing neo-liberalism.

This essay, with Mondragón as its benchmark, maintains a highly exploratory nature. Suitable ideas and hypotheses warrant further investigation, incorporating empirical data from other cooperative endeavors. Consider initiatives like Emilia-Romagna (Caselli et al, 2022), or closer to home, the ongoing experimentation with the commons idea (or Community Wealth Building, as explored by Otten, 2023). The commons movement emphasizes scale and transparency as crucial elements for success.

The cooperative concept is too compelling to languish in obscurity or marginality (Otten, 2023). Lessons from Mondragón and other successful cooperative models should be interpreted, translated, and applied in labor relations by science, politics, and social partners to promote ownership, equality, and solidarity.

In line with this, we conclude with a much-quoted sentence from the Mondragón community:

“This isn’t paradise and we are no angels, but we don’t exploit people.”

Let it sink into oblivion.

Acknowledgment

* This article is a modified translation of a publication in the Dutch Tijdschrift voor Arbeidsvraagstukken (Peeters, M. & Schouteten, R. (2024). Lessen van Mondragón. Tijdschrift voor Arbeidsvraagstukken, 40(1), 117-129. doi: https://doi.org/10.5117/TVA2024.1.008.PEET). It is based on Marc Peeters’ report about his visit to the Mondragón cooperation in 2021 (in Dutch). We owe special thanks to Ander Etxebarría, head of the Mondragón dissemination program, for the valuable conversations and insights.

** Data for this essay were collected from the literature, the internet, and through ethnographic research on-site by the first author (in 2021). In the context of the visit to Mondragón, there were also many conversations before and afterward, mainly by email. Due to the COVID-19 pandemic, visiting the production sites was impossible, and improvisation was required with the data collection. Therefore, this essay’s tone is largely based on the literature review. Nevertheless, the many conversations and emails with stakeholders and interested parties contributed to the picture of the functioning, value, and meaning of the project. Conversations and email correspondence have, among others, taken place with the head of the Mondragón dissemination program, a board member of the Mondragón Corporación Cooperativa, several founders of a Mondragón cooperative, the senior implementation Innovation and Management Systems at the Lortek cooperative, and various responsible persons for the curricula at the Mondragón University.

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