Posted July 18th 2011 at 8:31 pm by
in Mel King Community Fellows, Mondragon

Grappling with a Different Kind of Company: The Nuts and Bolts of People Over Profit

The ultimate goal of the coop is not to maximize profit, but to ensure the greatest possible opportunities for the development of the people who work at the coop, and for the larger community.

Grappling with a Different Kind of Company: The Nuts and Bolts of People Over Profit

Wilnelia Rivera of Neighbor to Neighbor Massachusetts talks with Mikel Lezamizu of the Mondragon Cooperative Corporation while looking out at the coop’s landscape. Photo by Carlos Espinoza Toro.

Today was our first day of the official Mondragon Cooperative Experience program in Spain’s Basque Country.  After a brief orientation at the Mondragon Cooperative Corporation (MCC) Headquarters, and a tour of the Fagor consumer products cooperative manufacturing plant, our little band of Mel King Community Fellows — 12 community organizers and activists, plus academics — were herded into a classroom at the Otalora Cooperative and Management Training Centre, an early 14th century manor house that was purchased and repurposed by the Mondragon Cooperative Corporation in the 1980s.

. . . . . . . .

At our desks are pocket-sized, cream-colored books containing the reflections of Mondragon founder, the Catholic priest, Don Jose Maria Arizmendiarrieta.

His book begins:

This priest does not consider the broad terrain of human realities outside his purview when what he does and preaches is simply the nature of and the need for a new spirit of justice and love, capable of becoming a tangible reality, made to measure for humankind, and in response to something beyond personal gain, greed, and narrow selfish benefit. In any case, we already know on whose side the blind and powerful forces ordinarily are: the people, the masses, which have been, are, and will continue to be the majority, will find that they will have on their side no small measure of justice, no small measure of reason and moral force.  However, . . . it is not the lack of power but the lack of knowledge that impedes people from raising themselves.

At Otalora, we learn of the history and origins of the cooperative movement and the MCC.  They are rooted in Basque culture and a deep sense of humanity that is a different values framework from any other social transformation approach that I know.  While our host, Mikel Lezamizu insists that the Mondragon Cooperative Corporation has always been politically neutral (it does not endorse any political party; it did not directly oppose Fransisco Franco, the notoriously brutal Spanish military dictator from 1936  to 1975 who, among other things, outlawed Basque language and culture; neither did it support the Basque independence movement); and while it carries the rather unassuming motto Humanity at Work, it is governed by the following basic coop principles:

1. Open admission (no one can be denied membership on the basis of race, ethnicity, class, religious affiliation, et cetera)

2. Democratic organization

3. Sovereignty of labor

4. Instrumental and subordinate nature of capital

5. Participatory management

6. Wage solidarity

7. Inter-cooperation

8. Social transformation

9. Universality

10. Education

Over the next four days, we will learn how the MCC has translated each of these values into organizational structures and practices.  Today we learned a lot about the fourth principle: capital is instrumental and subordinate.  The MCC views capital as instrumental and subordinate to the fullest realization of people’s inherent potential.

This means that the ultimate goal of the coop is not to maximize profit, but to ensure the greatest possible opportunities for the development of the people who work at the coop, and for the larger community. Thus, when there is an economic slowdown, the MCC’s priority is not to stabilize returns, but to ensure the greatest possible retention of jobs: members, who are also owners of the enterprise, are moved between coops to ensure the fewest number of layoffs. There is an Employment Fund, capitalized by deductions from the surplus of the enterprise (as well as from workers’ salaries), that underwrites salary differentials if workers have to move to a lower pay-grade in another coop.  The Fund also pays for displaced workers retraining to advance to the pay-grade they held in their last jobs.

Workers must pay up to one year’s salary to join the coop (after they have been vetted for at least 6 months to make sure they will be productive coop members).   To pay this fee, they can take very low interest loans payable in as long as 10 years.   But 80% of that membership fee plus interest (when profitable, the coops make 7.5% average returns) will be returned to them as an ownership stake over time. And the remaining 20% is invested in the future development of all the workers and the MCC — education (the coop enterprise’s university and primary and secondary private school system for children of the region — whether or not they are children of coop workers), human development (training and education for workers themselves) and security (health care, retirement pensions, disability, unemployment) for the coop members; and research, innovation and new enterprise development for the MCC.

The basic principle that capital is instrumental and subordinate to human development also has a community dimension. It means that the MCC invests a certain percentage of its overall surplus to support local schools, programs for children, local government programs and the like.  Most intriguing, this principle, also governs MCC’s international expansion.  While countries like the United States are off-shoring manufacturing to reduce costs and increase shareholder returns, MCC has decided to run its overseas production facilities according to its own humanistic values:

•  information transparency,

•  participatory management,

•  30% of the property should belong to the workers,

•  5% of returns dedicated to local development.

MCC’s take on capital gains could not be more different than the U.S. approach, with its singular focus on individual enrichment, in part through extracting wealth from the public through tax write-offs.

Throughout the day, our host, Mikel, reminds us: “Mondragon is not a panacea and we are not angels.”  He admits, for example, that the 30% ownership guideline for overseas operations has been postponed following the 2008 global economic crash. He concedes that the biggest challenge facing the Mondragon experiment is maintaining its cooperative values and principles as it expands beyond its current worker-owner base of 100,000 people.

Still, the possibility of running businesses based on humanistic values, yet at a globally competitive scale (MCC now manufactures parts for the largest auto and consumer products companies in the world; it exports to 140 countries and has overseas production in three, including the U.S.; its finance coop is one of the 10 largest banks in Spain; its supermarket coop is the third largest in Spain) deeply inspires, and maybe slightly disorients all of us.  As we wander back to our bus, one Mel King Fellow succinctly sums up the day: “I just learned that the world isn’t flat.”

Post by Dayna Cunningham. 

5 responses to “Grappling with a Different Kind of Company: The Nuts and Bolts of People Over Profit”

  1. Bob Waldrop says:

    There are some very interesting details in this post, such as the typical cost to join a Mondragon cooperative. This is the kind of info that is needed by those of us seeking to duplicate this experience. Another area of questions that we have is pay — how is pay solidarity worked out in the Mondragon system.

  2. Rodney North says:

    Here at Equal Exchange the top-to-bottom pay ratio is decided by the employee-elected board. Currently we have a top-to-bottom ratio of 4:1 and our total compensation is roughly comparable to that you’d find in a public school ($30k-$100K).

  3. Dayna Cunningham says:

    As I understand it, Bob, pay solidarity has several layers. I believe that the highest pay differential is 9:1, 9x being the salary paid to the top leader of the entire multinational corporation. But the other layers have to do with compensation in the event of economic distress. As noted in the post, no coop member is ever laid off due to economic shortfalls. Workers are reassigned but until the reassignment is made, 80% of their salaries and benefits are guaranteedOnce they ate reassigned, as noted yesterday, their full salaries Pre-assignment are guaranteed even if the new job is a lower pay grade. Both unemployment and pay differentials are guaranteed by the social fund into which all workers pay.

  4. Bob Waldrop says:

    Rodney and Dayna, thanks for these comments and explanations. Do you have any info about the two different kinds of compensation at Mondragon? My understanding is that a worker gets his or her paycheck, but then there is another compensation, a form of profit sharing perhaps? And this isn’t taken as a check, but is reinvested in the coop. Under what circumstances can the worker access the capital? Retirement? If he or she quits?

  5. Nancy says:

    This makes so much sense. The American belief that anyone can make it is a powerful and destructive myth. After all, there can only be one person at the top. Power sharing and transparency benefit

    individuals and the community. Thank you so much for these posts.