The four pillars of co-operation (Mondragón style)

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Continuing our reflection on our trip to Mondragón to see one of the largest worker co-operative systems in the world, Diarmuid discusses the four pillars driving the development of this great industrial democracy experiment.

Many co-operators will be aware of the Mondragón Co-operative Corporation (MCC) structure, as well as its principles derived from those developed by the Rochdale Pioneers. What might not be known are the pillars providing the foundation for MCC; these pillars reflect where MCC has come from, the challenges it currently faces, and the direction it wishes to drive the organisation in the future. The four pillars are education, social welfare, finance, and research & innovation.

The worker co-operative movement that originated in the Basque town of Mondragón was driven by a need to create sustainable employment in an area that suffered greatly during the Spanish civil war. Mondragón is much more than employment however; it is an educational movement, an experiment in social and industrial democracy. As Father Arizmendi once said,

It has been said that cooperativism is an economic movement that uses the methods of education… (it can) be modified to affirm that cooperativism is an educational movement that uses the methods of economics.

MCC holds the educational ideal of Father Arizmendi close to its heart and education is built into many of the functions of the group, be it the development of Mondragón University, member training and development or the many study visits it facilitates in order to educate the wider co-operative movement on its structure.

Social welfare
One of MCC’s core objectives is provide sustainable employment for its members. To this end, MCC places great importance on the social welfare needs of members and their families. Spanish law recognises members of worker co-operatives as self-employed, placing them in a vulnerable position. MCC created Lagun Aro, an insurance and pensions co-operative, to look after the social welfare needs of members. 26% of every member’s gross salary goes to Lagun Aro, of which 18% goes to their pension, 6% to the health fund, and 2% to the employment fund. This is supplementary to the 2% of gross profit that every Mondragón co-operative contributes to a solidarity fund to help pay the wages of members when they are ill or not working.

Finance is always a concern for co-operatives of all types: sourcing, managing and increasing capital requires innovative solutions. MCC recognises the importance of this and has a number of procedures in place to ensure their co-operatives are adequately financed. Firstly, the Caja Laboral (co-operative bank) plays a central role in supporting the establishment and maintenance of a co-operative. Secondly, MCC facilitates the transfer of loans between one co-operative and another. At firm level, MCC rules stipulate that 45% of a co-op’s net profit is to be allocated to reserves; even the 45% that is give to members is retained in the business in individual capital accounts.

Research and innovation
Mondragón’s great industrial experiment would not exist today if it weren’t for the emphasis placed on research and innovation, both in terms of product development and support institutions. MCC currently has 14 research centres supporting the 120 or so worker co-operatives in the group to develop new products/services. It is through this innovation that the future of the group is secured; new technologies give birth to new products and co-operatives, helping to replace declining industries with ones in their infancy.

These four pillars support MCC’s continued success, both from a business and co-operation perspective. They give rise to the practical implementation of MCC’s principles, support its structure and facilitate the achievement of future objectives.

Co-operative innovation: lessons from the Basque country

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Diarmuid, Hugh and Morag from the Co-operative Education Trust Scotland, as well as three students from the Scottish Agricultural College, visited the Basque country in Northern Spain to research co-operative models of enterprise. For the next week, we will publish a series of blogs on our experiences. In this post, Diarmuid outlines some of the ways in which the Basque co-operatives have developed innovative solutions to meet member needs.

A trip to visit the co-operatives of the Basque country, in particular the Mondragón Co-operative Corporation, is quite a popular excursion for global co-operators; Mondragón itself facilitated over 5000 visitors in 2010. Rather than recount the details of these co-operatives (much better examples exist – see the notes at the end of the article), I will share the most important insight I derived from the trip: the willingness to innovate to meet member needs.

1. Dealing with the downturn

While co-operatives have dealt with the current economic crisis better than other models of enterprise, they haven’t been immune to its effects. Mondragón has attempted to negate some of the worst effects by implementing measures aimed at protecting member interests. Some of the measures they take include withholding the 7.5% dividend paid on members’ capital accounts; reducing the working week to four days; letting non-member workers go; and relocating members from poorly performing co-ops to ones that are not in financial difficulty. These range of measures are designed to protect employment levels amongst members and to dilute the amount of risk borne by any one member or co-operative.

2. Getting capital onside

Day three of our trip took us outside of Mondragón to a potato processor, Udapa. Udapa is a secondary co-operative consisting of three member classes: a producer co-operative, a worker co-operative, and a credit union. Now, there is nothing hugely innovative about secondary co-operatives but I was intrigued by the role the credit union played; I just couldn’t figure out the need the secondary co-operative solved in terms of the credit union. It turns out that the credit union’s role is central to the financial stability of the co-operative: as well as contributing 20% of the capital requirements of the co-operative, the credit union forgoes its claim of the surplus in return for the co-operative conducting its banking with it. Udapa’s financial support might just be replicable here in the UK and could significantly increase the probability of smaller co-operatives surviving and subsequently prospering.

3. Involving multiple stakeholders

Following on from the previous innovation, the Mondragón co-operatives are particularly adept at productively managing multiple member classes. Take Eroski, the equivalent of the Co-operative Group. It successfully balances the needs of worker and consumer members to operate a multi-billion euro business. Representation on the board is equal: 6 worker-members and 6 consumer members. The co-operative bank, the Caja Laboral Popular, is no different: the needs of its co-operative members are balanced with those of the bank’s workers. In this case, representation is weighted 8:4 in favour of co-operative members but the result is the same i.e. a highly successful enterprise. And finally, Mondragón University is a secondary co-operative whose members are the different faculties, who in turn have three member classes: students, lecturers and collaborative partners (local businesses, authorities, community organisations). Co-operative practitioners and scholars will be aware of the challenges associated with operating a hybrid co-operative but the Mondragón experience, while not offering an off-the-shelf solution, could possibly offer a way of galvanising the disparate consumer and worker movements here in the UK.

Many co-operators consider the Mondragón co-operatives to be one of the best examples of a co-operative network in the world. They are not without their problems though. The key for the UK movement is to analyse its strengths (a well established consumer movement and an increasing presence in local communities) but look to the lessons from Mondragón to help address some its weaknesses (a divide between the consumer and worker movements, insufficient support structures for new and established co-ops). With the 2012 Year of the Co-operative fast approaching, now is the time for the UK movement to draw inspiration from Mondragón and instigate its own program of innovation.

Notes: contains details of some of the great pieces of work that discuss Mondragón. Have a look at the work of Oakeshott, Ellerman and Whyte for further analysis also.