The Mondragón co-operatives (1984)

From the July 1984 issue of the Socialist Standard

In face of the popular belief that co-operatives are ineffective and mostly doomed to failure, the workers’ co-operatives founded in Mondragón in the Basque region of Spain have been held up as an example of how successful workers’ control of industry can be. Only one of these co-ops apparently ever failed.

In 1982 there were 85 industrial cooperatives with around 20,000 members. The first one, ULGOR, was founded in 1956 under the guidance and inspiration of a Catholic Priest, Father Arrizmendi, by five of the first pupils to go to the technical training school he started with the help of local townspeople. Here Father Arrizmendi taught his ideas of “dignifying the role of labour” and “democratising the workplace”. ULGOR is today the leading Spanish producer of electrical goods like fridges, washing machines, cookers and dishwashers.

Several claims are being made about these types of co-operatives. David P. Ellerman in his papers The Socialisation of Entrepreneurship and What is a Worker cooperative? defines a co-operative as a firm “controlled and operated by the people who work in it”, and says that it is “neither privately nor publicly owned . . . . It is not owned at all; it is a democratic social institution”. There are, it is claimed, no “wages” and no “profits” in a worker cooperative, only “labour income”. Another claim made is that in a workers co-operative, “labour hires capital” instead of the other way round.

The structure of the Mondragón workers’ co-ops is different from other types of co-operatives. First of all, any new member wishing to join has to pay a membership fee of between £2,000/£2,500. This is more than most workers can afford so they put about 25 per cent down and the remainder is deducted from their pay over a two-year period.

Having paid the membership fee, the new member is automatically allocated one share in the firm on a one share/one vote basis. The members, through the General Assembly, elect the Board of Directors who in turn appoint the management. The shares are just membership certificates and do not carry the net worth of the company’s assets plus the accumulated retained profits; these are allocated to the so-called Internal Capital Accounts (or Internal Accounts)—a system invented by the Mondragón co-operatives. Seventy per cent of the co-operative’s profit is credited to the members’ Internal Accounts according to the formula “equally per hour worked or equally per dollar pay”; similarly, if the company makes a loss, this is deducted from the Internal Accounts. The difference between the allocation to the highest and lowest remunerated member is 3-1. Should members wish to realise their capital, they normally have to wait until retirement when the firm pays it out over a period of years. If they have to leave the co-op earlier “for reasons beyond their control”, their capital will be cashed but if they leave to work for a competitor, 30 per cent of the value of their Internal Accounts will be deducted.

It is claimed that the “members” of a co-operative are not paid wages as such. Ellerman describes it as follows:

The net value accruing to the workers is the value of their product less the non-labour costs. Some of that value is paid out during the year (the closest analogy to “wages”), some is paid out at the year’s end (bonuses), and some is retained in the co-operative. Since the net amount is not known until the end of the fiscal year, the amount paid out during the year is an advance or an anticipation (anticipos) of the workers’ income.

The group headquarters of the Mondragón co-operative movement is the Caja Laboral Popular (Bank of the People’s Labour) whose main role is to be a credit institution for the associated co-operatives. Apart from the Banking Division it also has an Empresarial Division which concerns itself with the launching of new co-ops, performs feasibility studies into new market possibilities and keeps these on file for the use and further exploration of people planning to start new co-ops. The Caja Laboral Popular assigns a “godfather”, usually an experienced manager from within the group, to keep an eye on and advise the fledgeling co-ops. The Empresarial Division stays in close contact with the research and development institute, Ikerlan. which is an offshoot of the Polytechnical College of the Mondragón group.

What are the reasons behind the apparent "success" of these co-operatives? One factor is the economic upturn in Spain in the 1960s which resulted in heavy demand for household electrical goods. Another could be the tightly woven net comprising the co-ops; the double function of the Caja Laboral Popular: Ikerlan and the Polytechnical College. Perhaps most importantly, the willingness of workers (or "members") in co-ops to accept smaller wage rises and more spartan working conditions, as they believe they are working in their own firms and therefore have to keep an eye on costs. A further strengthening of worker solidarity in this region could be Basque nationalism.

So where does control, and thereby ownership, lie in the Mondragón co-operatives? The key question is whether the workers can actually directly gain access to their capital and decide what to do with it. They cannot; in fact the whole system seems to operate like a pension scheme, as the members have to wait until retirement to realise their earnings and even then they do not get it paid out in one lump sum. Most effective control and decision making is carried out by management, who in this case would be the de facto owners of the co-operatives.

It must also be remembered that cooperatives are integrated into the market system and subjected to the same economic laws as other firms. Should Spain eventually join the Common Market and the high protective import duties imposed to protect Spanish produced goods be removed, the Mondragón co-ops might face very strong competition from foreign produced goods. The claim that "labour hires capital” does not hold up as there must be something in the kitty to pay new members their wages (or "anticipos").

The argument is often put that it is possible to establish "little islands of socialism—workers co-operatives — within the framework of capitalism, thus making a revolutionary, world-wide change from capitalism to socialism unnecessary. But socialism means common ownership and free access to everything that is produced. Such a social system does not exist in the Mondragón co-operatives or anywhere else in the world. The rigorous economic law of profitability at all costs imposed by the market must be supported by defenders of co-operatives; if. under capitalism, you don’t observe this law you very quickly go out of business.

Torgun Bullen