January 6, 2013

How Spanish cooperative kept unemployment 40% below national level

Aram Donabedian, Madison Hours:

Employing more than 83,000 worker-owners Mondragón, is the world’s largest co-operative organization. Based in the Basque Country of Northern Spain, the co-op has expanded its reach to China, India, Latin America, and a variety of European countries during the last 56 years of operation. By remaining committed to the basic tenants of the cooperative movement:
 non-discrimination, democratic organization, the sovereignty of labor, the subordinate nature of capital, participatory management, inter-cooperation, societal transformation and education, Mondragón has been instrumental in the propagation of co-operatives and provided a robust alternative to more traditional capitalist models of organization.

... Mondragón accounts for 3% of Spain’s industrial output. Operating under brand names Fagor, Brandt and Mastercook, Mondragón produces a wide variety of consumer goods including: washers, dryers, ovens, and boilers. The cooperative also produces furniture, camping gear, exercise equipment and car parts. While many developed nations have seen their manufacturing sectors bottom-out as jobs are outsourced abroad, Mondragón’s organizational structure, which enshrines the democratic participation of worker-owners, helps ensure that jobs remain in the communities where they are founded. Even as Spanish unemployment hovers around 25%, the Basque region, home to Mondragón, has maintained a 15% unemployment rate.

As Spain implements increasingly harsh economic austerity measures, Mondragón has been well prepared to weather the financial crisis. The stability of the co-op is due in part to the solvency of the Caja Laboral Bank, which provides the network with a strong financial backbone. Funds from the wide network of Mondragón member cooperatives have traditionally been pooled at the Caja Laboral and proceeds have been used by the bank’s entrepreneurial division to explore new startups, issue microcredit, and provide low interest loans to members. With 387 branch locations, the cooperative bank services more than just co-op member organizations and worker owners... With more than 4.2 billion euros in assets invested in the bank, Lagun Aro provides worker-owners with services which supplement Spain’s rapidly dwindling social security programs including: retirement funds, support for widows, and disability. While the Caja Laboral lost 16 million euros when Lehman Brothers collapsed, the bank has otherwise remained relatively stable.

Following the slowdown of the global economy in 2009, the demand for consumer and capital goods was significantly reduced. Rather than taking a top-down approach to the problem, with executives issuing layoff notices and closing plants unilaterally; Mondragón worker-owners made a concerted effort to address economic problems collectively. General assemblies of worker-owners and management, convened in each co-op, decided how to address shortfalls individually based each organization’s unique circumstances. A variety of responses were employed including, issuing layoffs by lottery, voting on pay freezes, and deciding to temporarily cut salaries. When shortfalls were deemed insurmountable the Caja Laboral stepped forward and provide short term loans to member organizations. While these solutions are not without negative impacts for workers, the coop’s commitment to the democratic process allows workers to be active agents in the fate of their workplace. This commitment to more egalitarian managerial models is exemplified in Mondragón’s decision to cap executive pay at six times the rate of the lowest paid workers. By comparison, U.S. executives in the S&P 500 Index earn an average of 380 times what the average worker makes. As a result, Mondragón worker-owners earn 13% higher wages than their peers in comparable non-cooperative businesses.

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