Mondragón and the Current Crises

We all know how American businesses are handling the crises: layoffs and bailouts, if they can get them. But how about the Mondragón Cooperative in Spain? Does it not face the same pressures? According to the Financial Times, one of the world's most respected business magazines, the Cooperative is taking another approach:

Fagor is a workers’ co-operative, one of dozens that dot the valleys of Spain’s hilly northern Basque country. Most belong to the world’s biggest group of co-operatives, the Mondragón Corporation. It is Spain’s seventh-largest industrial group, with interests ranging from supermarkets and finance to white goods and car parts. It accounts for 4% of GDP in the Basque country, a region of 2m people. All this has made Mondragón a model for co-operatives from California to Queensland. How will co-ops, with their ideals of equity and democracy, cope in the recession?

Problems may be shared with competitors, but solutions are not. A workers’ co-op has its hands tied. It cannot make members redundant or, in Mondragón’s case, sell companies or divisions. Losses in one unit are covered by the others. “It can be painful at times, when you are earning, to give to the rest,” Mr Zabala admits. Lossmaking co-ops can be closed, but members must be re-employed within a 50km (30-mile) radius. That may sound like a nightmare for managers battling recession. But co-ops also have their advantages. Lay-offs, short hours and wage cuts can be achieved without strikes, and agreements are reached faster than in companies that must negotiate with unions and government bodies under Spanish labour law.

Of course, Mondragón has seen this before. In the 80's, when unemployment in the Spain reached 27% and businesses where closing all over, they managed to survive with only a 0.6% unemployment rate, and only had to close three of the 103 cooperatives that made up the corporation at that time. And the three they closed were coops that had started just as the troubles began, and never reached profitability.

What distinguishes the cooperative approach from the corporate one is the notion of shared responsibility, which means shared gains and shared pains. In the United States, we have socialized the pains, and privatized the gains. Workers are also the owners, and they are able to make difficult decisions in a way that our corporations cannot. But then, there is very little difference, socially, between the highest and lowest in the company. The top pay is limited to eight times what the lowest worker makes (giving management a real incentive to keep the lowest pay relatively high). Compare that with the 300-500 times times the average wage an American CEO typically "earns."

Everybody can claim to have a good system in good times, but it is the times of trouble that really test theories. In the crises of the 80's, Mondragón passed with flying colors. the American banks restricted lending and sought bailouts; The Cooperative Bank (Caja Laboral) extended credit and took an active role in rescuing cooperatives in trouble. They went through the crises together, and survived it together. History is repeating itself, I suspect, only this time Capitalism may not be able to bail itself it.