Mondragon Cooperative Corporation: A superior economic system

[Phokus]

http://en.wikipedia.org/wiki/Mondrag%C3%B3n_Cooperative_Corporation

The MONDRAGON Corporation is a federation of worker cooperatives based in the Basque region of Spain. Founded in the town of Mondragón in 1956, its origin is linked to the activity of a modest technical college and a small workshop producing paraffin heaters. Currently it is the seventh largest Spanish company in terms of turnover and the leading business group in the Basque Country. At the end of 2009 it was providing employment for 85,066 people working in 256 companies in four areas of activity: Finance, Industry, Retail and Knowledge. The MONDRAGON Co-operatives operate in accordance with a business model based on People and the Sovereignty of Labour, which has made it possible to develop highly participative companies rooted in solidarity, with a strong social dimension but without neglecting business excellence. The Co-operatives are owned by their worker-members and power is based on the principle of one person, one vote.[1]

Being an anarcho-syndicalist, this is the type of economic system that Noam Chomsky would advocate. It's a shame we couldn't have something similar in the US. For 2009, they had 85,000 employees and had revenues of 14 billion euros in 2009. Most worker cooperatives are very small in the US (think hippy pizza shop in Berkeley California, or some cooperative organic farm). This spanish firm is democratically controlled by it's workers and they do just about everything: Finance, capital goods, consumer goods, retail, education, etc. etc.

Also, the workers vote on how much management earns:

Wage Regulation
At Mondragon, there are agreed-upon wage ratios between the worker-owners who do executive work and those who work in the field or factory and earn a minimum wage. These ratios range from 3:1 to 9:1 in different cooperatives and average 5:1. That is, the general manager of an average Mondragon cooperative earns 5 times as much as the theoretical minimum wage paid in his/her cooperative. This ratio is in reality smaller because there are few Mondragon worker-owners that earn minimum wages, their jobs being somewhat specialized and classified at higher wage levels.[10]
Although the ratio for each cooperative varies, it is worker-owners within that cooperative who decide through a democratic vote what these ratios should be. Thus, if a general manager of a cooperative has a ratio of 9:1, it is because its worker-owners decided it was a fair ratio to maintain.[10]
In general, wages at Mondragon, as compared to similar jobs in local industries, are 30% or less at the management levels and equivalent at the middle management, technical and professional levels. As a result, Mondragon worker-owners at the lower wage levels earn an average of 13% higher wages than workers in similar businesses. In addition, the ratios are further diminished because Spain uses a progressive tax rate, so those with higher wages pay higher taxes.[10]

Some of our most successful tech firms started as worker cooperatives (think a bunch of hippy geeks starting their companies in their garages), but the successful ones all go public and capital (and thus ownership/decision making) moves from the worker to the wealthy.

In Mondragon's system, value created by the firm is shared amongst workers, while in our current system, excess value is extracted by those at the top. Is it any wonder that the wealth of the top 1 percent has skyrocketed while the middle and lower classes have had their wages stagnate, jobs shipped overseas, etc.?

Edit: I missed this part: "In October 2009, the United Steelworkers announced an agreement with Mondragon to create worker cooperatives in the United States.[4]"

That's pretty good news. I hope it becomes a more popular form of business here.

Edit: here's a great article about this company

http://www.entrepreneur.com/tradejournals/article/116926710_4.html

 

[Gigantopithecus]

IIRC when Detroit was in its heyday the typical manager:line worker pay was 5:1.

 

[KlokWyze]

Gives incentive for the bulk of the workforce to perform well and management will be held responsible for their actions. Sounds like exactly the opposite of every single company I've ever worked for.

 

[Phokus]

Gives incentive for the bulk of the workforce to perform well and management will be held responsible for their actions. Sounds like exactly the opposite of every single company I've ever worked for.

Yep, in this system, both management and workers think about the longer term.

From what I'VE seen working in 2 fortune 100 firms, management thinks more about short term profits because a) Wall street puts pressure with these ridiculous arbitrary forecasts of how well the firm should do in the near future and will punish your stock if you aren't in line with how they think you're going to do, and 2) Manager's compensation are tied more to short term performance than anything else.

Wall Street ruins EVERYTHING.

 

[Schadenfroh]

I recall watching a documentary on the Mondragon Co-ops in my economics class back in undergrad. I am a big fan of employee stock ownership programs, credit unions / utility associations and co-ops. They can work quite well in market economies, especially when they are free of government taint and the ilk that runs some of the more notorious labor unions.

 

[Phokus]

I recall watching a documentary on the Mondragon Co-ops in my economics class back in undergrad. I am a big fan of employee stock ownership programs, credit unions / utility associations and co-ops. They can work quite well in market economies, especially when they are free of government taint and the ilk that runs some of the more notorious labor unions.

Employee stock ownership doesn't really give you shit as an employee though. We have an employee stock ownership program at my place (you get like 20% off the market price or something) and that hasn't stopped layoffs/wage freezes, etc. The majority of the stock is still owned by outsiders and they want layoffs.

 

[chucky2]

Yep, in this system, both management and workers think about the longer term.

From what I'VE seen working in 2 fortune 100 firms, management thinks more about short term profits because a) Wall street puts pressure with these ridiculous arbitrary forecasts of how well the firm should do in the near future and will punish your stock if you aren't in line with how they think you're going to do, and 2) Manager's compensation are tied more to short term performance than anything else.

Wall Street ruins EVERYTHING.

Holy shit, a complete Phokus post I agree with.

Chuck

 

[Double Trouble]

A "superior" system in what way exactly? If it was so superior, wouldn't it be in use all over the world? Of course not. Like any system, it has strengths and weaknesses. Obviously, the company has some success, so they do some things right.... but that is far from being "superior". The reality is that over the long haul the company is going to have a tough time holding on to top flight talent, since executives earn 30% less than execs in other similar businesses. That drain will manifest itself over time, no matter what.

How do we know (for example), that instead of $14 billion in revenues the company would not have $140 billion in revenues if it followed a more traditional setup or had better management?

 

[Jhhnn]

A "superior" system in what way exactly? If it was so superior, wouldn't it be in use all over the world? Of course not. Like any system, it has strengths and weaknesses. Obviously, the company has some success, so they do some things right.... but that is far from being "superior". The reality is that over the long haul the company is going to have a tough time holding on to top flight talent, since executives earn 30% less than execs in other similar businesses. That drain will manifest itself over time, no matter what.

How do we know (for example), that instead of $14 billion in revenues the company would not have $140 billion in revenues if it followed a more traditional setup or had better management?

Or maybe they'd have been getting bailed out like Wall St...

"Top flight talent" usually means the slickest, greediest back stabbers of them all...

 

[JS80]

loliberals

 

[MovingTarget]

loliberals

Care to contribute? LOLJS80. Do you have a problem with this particular model of corporation?

 

[Dissipate]

It's a shame we couldn't have something similar in the US.

Why couldn't you? A corporation could set up an operating agreement implementing any wage ratios the founders wanted.

Being an anarcho-syndicalist...

As an anarcho-syndacalist you are by definition opposed to taxation. That being the case, who is going to build the roads? What about police and fire protection? How are schools going to get funded? Won't planes crash without an FAA funded by taxation? Who is going to regulate food quality and medical care? How are markets going to be regulated without a tax funded agency similar to the SEC? How is the nation going to be defended without a tax funded military? Those are just a few of the many questions.

 

[Steeplerot]

This is the government/private sector of the future. Workplace democracy based off the groups profit instead of the corrupting needs of a few who exploited fellow workers labor and needs.

 

[Steeplerot]

A "superior" system in what way exactly? If it was so superior, wouldn't it be in use all over the world?

Why was Democracy not all over the world in 1776? A few people tried it, saw that it worked, then started the journey in getting knuckleheads to pay attention long enough to see logic in reforming a already entrenched corrupt system we all know is a fail.

 

[Steeplerot]

As an anarcho-syndacalist you are by definition opposed to taxation.

You really should read about Anarchist Catalonian Spain, really the only Libertarian government ever set up in history that succeeded, and it used this model of free-associative socialism democratically run. No bosses, no gods and all that rhetoric from back then.

And yes, they did have a "government" of sorts, but it was not a "top-down" model we still use.

Along with his well known book "Animal Farm" was "Homage to Catalonia" where he discussed in great detail how a good sized part of spain was organized, infrastructure built, factories built, schools opened, and a war fought. They also were well known for fast good light armored vehicles they produced to be the first on the front lines fighting fascism. (in the Spanish Civil War -which was the opening act of WW2 really)

Catalonian Spain was crushed by the overwhelming fascist tide of the mid 1930s and stabbed in he back by communists backed by Stalin while mostly abandoned by the Capitalist US, except for a few volunteer comrades -led by the first Afrian-American commander.

Regardless, it was the closest thing I have seen to a way to incentive individual achievement while balancing the needs of a society without all the bad police state or inevitable corporate overlord movie scenario aftertaste for the future.

Pondering all new government forms is a good exercise in my opinion if you like politics, who knows who will come up with the "balance" system one day that keep us from distracting one another from the real issues that are important finally so we can get down to cool stuff we are capable of as a species.

Ever read Animal Farm? It is not a anti-communist book so much as a anti-authoritarian criticism of Capitalism and Communism. (read HtC to see to his real point of AF)

http://en.wikipedia.org/wiki/Homage_to_Catalonia

 

[1prophet]

Beautiful, now how do you compete against this?




http://www.youtube.com/watch?v=U-LLsODnuHI

http://www.youtube.com/watch?v=yQPrbwWWUD4&feature=related

http://www.youtube.com/watch?v=zqsY9eB1HD4&NR=1&feature=fvwp

 

[DominionSeraph]

Requires an educated and intelligent workforce.

Wouldn't work in the Nascar Nation.

 

[PrinceofWands]

A "superior" system in what way exactly? If it was so superior, wouldn't it be in use all over the world? Of course not. Like any system, it has strengths and weaknesses. Obviously, the company has some success, so they do some things right.... but that is far from being "superior". The reality is that over the long haul the company is going to have a tough time holding on to top flight talent, since executives earn 30% less than execs in other similar businesses. That drain will manifest itself over time, no matter what.

How do we know (for example), that instead of $14 billion in revenues the company would not have $140 billion in revenues if it followed a more traditional setup or had better management?

You suggest a pretty bold thing here: that the best ability is also the greediest. I don't believe there is ANY existing support for that position.

 

[sandorski]

An interesting system and one that's been tried here with some Sawmills that were being shutdown. Unfortunately that is a dying Industry here and despite it making the News when being setup I am unsure what ultimately happened with them.

I couldn't help but note that the name of this corporation sounds like a James Bond villain though.

 

[Schadenfroh]

I couldn't help but note that the name of this corporation sounds like a James Bond villain though.

Well, it is located in the Basque Country of Spain, guess Bond, James Bond, could be going after these guys:

http://en.wikipedia.org/wiki/ETA

 

[Phokus]

A "superior" system in what way exactly? If it was so superior, wouldn't it be in use all over the world? Of course not. Like any system, it has strengths and weaknesses. Obviously, the company has some success, so they do some things right.... but that is far from being "superior". The reality is that over the long haul the company is going to have a tough time holding on to top flight talent, since executives earn 30% less than execs in other similar businesses. That drain will manifest itself over time, no matter what.

How do we know (for example), that instead of $14 billion in revenues the company would not have $140 billion in revenues if it followed a more traditional setup or had better management?

1. A superior system in which value created is shared by the entire company rather excess value transferred from the bottom to the top.

2. In terms of 'top flight talent' leaving, it's balanced out by the fact that there's more job security. Also, those at the top are pretty worthless anyway, they don't contribute much to value creation. From what i've see working at companies, it's really the bottom and mid level talent that creates value. Up until the presidents of divisions, everything above that is worthless.

edit: No layoff policy:

No Lay-Off Policy

One of the most essential tenets of economic justice, according to Catholic social thought, is the right to work. Laborem Exercens states that human persons have a right to work and that "the 'poor' appear ... as a result of the violation of the dignity of human work: either because the opportunities for human work are limited as a result of the scourge of unemployment or because a low value is put on work and the rights that flow from it, especially the right to a just wage and to the personal security of the worker and his or her family" [14:37]. In addition, "unemployment almost always wounds its victim's dignity and threatens the equilibrium of his life. Besides the harm done to him personally, it entails many risks for his family [4: No.2433]. The right to work, however, has become practically non-existent in traditional organizations as, in the insatiable quest to improve profitability, eliminating human work has become the first line of attack for cost reduction. (5)

At Mondragon, a job is sacred and protecting a worker-owner from losing it is vigorously pursued. Mondragon promotes economic justice and solidarity through the principle of Intercooperation, which includes a no-layoff policy. As a consequence, no worker-owner has ever been fired in Mondragon. Worker-owners are protected from market fluctuations by arranging transfers to other cooperatives if they are displaced due to market-related causes. Mondragon has a mechanism to track, re-train and relocate these displaced worker-owners, who maintain their pay level if they take a new job that pays lower wages. Also, temporarily displaced workers maintain 80% of their last wage until they are relocated.

In addition, workers who need to be relocated due to personal or performance-related reasons are able to do so, after a process of evaluation. That is, at Mondragon it is assumed that an able and willing worker may be ineffective if assigned to a type of work unsuitable for his or her skills, but that there is work somewhere in the organization where this worker can perform adequately. In brief, at Mondragon, "work is 'for man' and not man 'for work'" [Laborem Exercens, 6].

http://www.entrepreneur.com/tradejournals/article/116926710_4.html


3. The reason why we don't see more of these types of entities is because of the example i outlined in the OP with successful tech companies... once those startups (which work very similarly to cooperatives in many cases) become successful, they go public and the original owners becomes MASSIVELY wealthy. Wall Street creates a massive incentive that discourages that type of communal ownership. Like i said, wall street ruins EVERYTHING.

 

[jackstar7]

You suggest a pretty bold thing here: that the best ability is also the greediest. I don't believe there is ANY existing support for that position.

Agree completely. While there are a few companies that try to compensate passion married to talent/skill, most just take advantage of it.

 

[Phokus]

loliberals

Just a reminder that JS80 brags about helping upper management in laying off people and he actually takes glee in doing so.

 

[Hayabusa Rider]

A "superior" system in what way exactly? If it was so superior, wouldn't it be in use all over the world? Of course not. Like any system, it has strengths and weaknesses. Obviously, the company has some success, so they do some things right.... but that is far from being "superior". The reality is that over the long haul the company is going to have a tough time holding on to top flight talent, since executives earn 30% less than execs in other similar businesses. That drain will manifest itself over time, no matter what.

How do we know (for example), that instead of $14 billion in revenues the company would not have $140 billion in revenues if it followed a more traditional setup or had better management?

You are supposing that management is a meritocracy and of all positions within a corporation it's probably the least true. I can point to the major financial catastrophes as examples. Canadian management of financial institutions was clearly superior to failed ones elsewhere earning far more here. Our management executives earn many times more than their peers with less actual accountability with no added value. In fact the whole top down system is screwed. The people in my company have no clue how to run things because they don't know or care about anything other than what the market will expect in the next quarter. They cut payroll which drives down payroll which hurts customer service decreasing sales which gives them an opportunity to cut payroll. For increasing "productivity" they get raises and a bonus. This is not unique. Just why its this a good thing?

 

[Phokus]

You really should read about Anarchist Catalonian Spain, really the only Libertarian government ever set up in history that succeeded, and it used this model of free-associative socialism democratically run. No bosses, no gods and all that rhetoric from back then.
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This is very true. Anarcho-Capitalism is the dumbest political/economic philosophy, considering you basically need at least a minimal government for Capitalism to work. Actually most libertarians believe you need at least a minimalist government (thus validating that capitalism is a result of government), but anarcho-capitalists are a different breed. I think the Spaniards have effectively shown that, in absence of government, capitalism is a completely unnatural economic system and people tend towards communal bottom up systems instead.

When we reach peak oil, capitalism is going to crumble because the food supply is heavily centralized with big corporations owning most of the production. Sure they give us cheap food now, but when they can't deliver our food anymore because of oil shocks, we'll have to rely more on our local communities to grow our food.