Originally published in Vanguard, November 1989 Print

Mondragon Revisited

DAVE JONES looks at the Mondragon Co operative Group in Spain and examines its implications for the National Front's industrial policy.

THE NATIONAL FRONT has stated that it would like to see co-operative ownership become the norm in British industry. In the Sept/Oct issue of Vanguard it was argued that such ventures as the Aberdeen Dockers co-operative demonstrate " . . that a radical alternative to the 19th Century alternatives to Capitalism and Socialism can work - indeed is already working."

But do such isolated examples justify such a contention? Workers' co-operatives exist in both capitalist and state-socialist societies but to date have only played a minor role in major industrial economies, except perhaps in Yugoslavia. They have usually been small, short-lived enterprises situated outside the major industrial centres. Different styles of worker co-operatives have emerged, but weaker movements, like that in Britain, have looked abroad for inspiration.

The September 1982 issue of the NF magazine Nationalism Today carried an article by Joe Pearce on the much praised Mondragon co-operative. For the benefit of those who have joined the NF since, a fresh look at this remarkable venture is justified.

A MODEL FOR EMULATION

The Mondragon Group of worker co-operatives in the Basque region of Spain has provided a major stimulus and model for emulation to co-operatives elsewhere in Europe, by demonstrating the economic potential of producer co-operatives operating in a capitalist environment. Since its beginning in 1956, Mondragon has undergone rapid expansion and has been able to out-perform local capitalist competition. By 1980 Mondragon employed some 19,000 people. To see how it developed to this size and status it is necessary to study its origins in post-civil war Spain.

During the civil war of the 1930's, the Basques mostly supported the Spanish Republic against the Nationalist army of General Franco and his allies, hoping to gain their long campaigned for autonomy from Spain. However, Franco won the war and formed an authoritarian regime which was nominally Falangist, but in reality simply arch-Conservative.

However, for the Basques the outcome was a disaster. The Franco regime was strongly centralist and never forgave the Basques for siding with the Reds. In the ensuing devastation many Basques fled the country and others were imprisoned. Among the latter was a student priest, Jose Maria or Father Arizmendi as he was later known, who had worked on an anti-Franco paper.

At the end of the civil war (1937) Jose Maria continued his studies taking a special interest in socio-economic issues and was influenced by Catholic social doctrine, as laid down by the Papal encyclicals e.g. Rerum Novarum, which rejected laissez faire capitalism and collectivist socialism; looking instead for an alternative which would reconcile social justice with the ownership of property and individual freedom. In 1941 he was appointed to the parish of Mondragon and also taught young apprentices in a company school, but due its limited scope, he started his own school financed by local contributions.

Inspired by Jose Maria and with the financial support of their community, a group of his pupils started up their own firm in 1956.This was called ULGOR and it produced heaters and cookers. Three years later it had a workforce of 170. By 1976 its workforce had grown to 3,500 and was Spain's leading manufacturer of fridges.

The business adopted the ideas of Robert Owen, who had influenced the Rochdale Pioneers, founders of the first successful producers co-operative in Britain in 1844. Other local co-operatives linked up with ULGOR, but all these co-ops faced three common problems: poor access to capital and managerial expertise, exclusion from the Spanish social security system and a limited technological base.

SOLUTIONS

The first solution was to establish a co-operative savings bank, the Caja Laboral Popular. By 1980 Caja had 300,000 deposit accounts, providing capital investment to the rest of the group. The Caja has two roles - it is the financial adviser to Mondragon and it also attracts the necessary private accounts which provide investment funds. One study found that 82% of members took the view that Caja supports the interests of the Mondragon workers (Bradley and Grieb, 1983). This solidarity appears to have been affected to some extent by economic recession, with a sharper divergence emerging between Caja's role as a savings bank and as a development agency for the co-operatives. The Caja also took responsibility for the social needs of the Group, until these were taken over by Lagun-Aro in 1970. This was another second degree co-operative which provided the Group with a full range of welfare benefits. Contributions are levied from all members.

The solution to the third problem facing the co-operatives, that of a limited technical base, came with the formation of Alecoop, a co-operative factory/training school (in 1966). This carried out both training and research and proved very popular. By 1980 there were 1200 students in attendance who combined their studies with part-time work in the factory.

This not only served to enlarge the pool of trained workers, but ensured that they were socialised in the co-operative ethos. The extensive training programme equips the Group with the technical capability to withstand foreign competition. Expansion has been considerable - by 1980 more than 80 individual co-operatives existed engaged in a wide range of activities.

Members are recruited by selection procedures peculiar to the Group. Apart from the usual criteria of skill and education qualifications, Mondragon also takes social factors into consideration. For example, they prefer to recruit local Basques as this gives the membership a more homogenous quality. The Basque language is also taught in the co-operative schools. After a trial period of six months the recruit becomes a full member of the co-operative.

While joining the organisation does not guarantee a job for life, adjustments in the workforce are not normally carried out via job shedding but by re-location among co-operatives which share revenue.

Each co-operative has a set of rules which regulate work discipline. Serious disciplinary problems are rare, with the most common offence being that of poor time-keeping. The co-ops administer a wide range of penalties for offenders, the most severe being explusion from the Group which is the penalty for striking!

In 1974 a pay dispute at Ulgor led to the only strike in Mondragon's history, 17 members were expelled and many more disciplined after rejecting an ultimatum to return to work. This strike, thought to be related to the large size of Ulgor, played a part in the decision to limit the size of future co-operatives to a maximum of about 500 members.

The structure of a typical Mondragon co-operative is organised along the following lines: the members exercise control of the enterprise via the General Assembly, this elects a Control Committee which in turn appoints the General Manager (GM). It is GM who is responsible for other management appointments. There is also a Social Council which acts as an advisory body and serves as an avenue of communication between the members and the Control Committee. In the last analysis all disputes are settled by a majority vote in the General Assembly.

This democratic structure, which holds management accountable to the workforce, ensures that the interests of the members prevail. There is a real measure of worker-management trust, which is impressive given the tight discipline. However, this trust in the management does not mean there is no criticism.

In fact, co-operatives take quite a critical view of management, which tends to result in a high management turnover. The system allows the worker-shareholders to exert more influence on the management, than is possible in the case of shareholders in a capitalist corporation.

The management are under a great deal scrutiny and can suffer from unfair criticism. Therefore it tends to have difficulty recruiting experienced managers from outside the Group. They cannot offer the same financial rewards as normal firms and the power relationship is unattractive to conventionally trained managers. Therefore the pool of management at Mondragon is rather young and inexperienced.

Moreover, its commitment to the Group is based on ideological and communal factors, rather than career considerations. While this situation is ideologically sound, it is not entirely satisfactory, since experienced, competent managers must be an essential ingredient of a sound industrial policy. Mondragon's recruitment policy provides jobs for many local people and links the enterprises to the wider community. An individual's pay is determined by such factors as: qualifications, degree of responsibility, hard or dangerous work and even social integration. Currently there is intense debate over existing pay scales. It is difficult to imagine many skilled British workers accepting such an egalitarian wage system.

During Mondragon's expansion, the Group has been consistently profitable. There has been a decrease in the growth rate since the 1960's, but despite this, the average sales increment has remained constant. Individual co-operatives have a significant market share in certain products, up to 30% for selected consumer durables, but this is limited due to the size restrictions on enterprises. It has also been upgrading its technology to keep pace with competitors.

On the whole it is fair to say that Mondragon has outperformed its capitalist environment. However, like its capitalist competitors it has not gone unscathed by the world recession.

ALTERNATIVE

Mondragon is an appealing alternative to capitalism and state directed socialism. The Mondragon experience suggests that the co-operative movement does present a potential alternative to existing forms of industrial ownership given the necessary level of commitment to make it work.

Since the increase in media interest in the late 1970's Mondragon has influenced policy in a number of countries. There has been a new surge in the trend towards employee buyouts of declining firms in Britain, despite the disaster of the 1974 co-operatives sponsored by Tony Benn (Meriden etc). Mondragon's success has added legitimacy to the movement. The Callaghan government passed legislation that facilitates (in a small way) the formation of workers co-operatives.

A feasibility study was carried out in South Wales by the Welsh TUC and a modest fund set up, but few people took advantage of this opportunity to become owner-workers. This emphasizes the need for motivating and educating depressed working class communities.

The belief that the Mondragon system offers more favourable working conditions than traditional capitalism is well supported. Survey evidence shows a generally good climate of labour relations in co-operatives and a strong link between consensus and productivity. Favourable perceptions of job content and participation also support this view, with 77% of co-operateurs believing that the co-operative nature of their enterprise allows more job control than in conventional firms. All co-operative members are educated in the co-operative, with individual shareholdings being an important motivating role in Mondragon. The Mondragon model seems best suited to re-industrializing depressed areas or developing isolated areas with stable communities, due to conflict between three objectives: capital accumulation, labour instability and solidarity. The Basque area of Spain where Mondragon is situated is a peripheral area which lacked a modern industrial infrastructure when ULGOR was founded and still has less than ideal communications.

However, the relatively small and isolated community may help to maintain concensus and partially insulate the co-operatives from the pressures of the external labour market. The location may also contribute to the tolerance of a compressed wage scale. Would British workers put up with the comparatively low level of immediate income as opposed to the long-term capital reward? One fears that the pressures and the expectations of the consumer society are just too great.

Mondragon can be described as a tremendously successful industrial experiment with well-defined organisational structures. However, it is not without its problems and these have been exacerbated by the decline of traditional manufacturing industry in Europe during the 1980's. The distinctive Mondragon style has not been exactly copied and this could suggest that although the idea may seem attractive in principle, it is more difficult to implement in practice.

The necessary motivation and self-discipline may not be welcome or even exist elsewhere. Such a project may be more viable in an area with a strong sense of community and the peripheral minority status of the Basques in Spain played a key part in Mondragon's development.

As Robert Oakeshott says in his book The Case for Workers' Co-Ops (1978, p172) "it is hard to believe that if Franco's authorities had allowed popular opinion to express itself in more normal ways... the community would have been mobilized by anyone... to direct its energies into as unorthodox an expression of reconstruction and development... and there would have been no ULGOR..."

Ironically, the Spanish nationalism of the Franco era with its centralist bias and repression of Basque culture helped to create the very social cohesion they exhibit. So if the Mondragon phenomenon is to be repeated elsewhere it will have to be adapted and suited to local conditions.

Some caution is needed in drawing sweeping conclusions from a particular example, especially when it is so strongly rooted in the peculiar economic circumstances and cultural conditions of the Basques.