Mondragon: Spain’s giant co-operative where times are hard but few go bust
The Guardian, by Giles Tremlett
José María Ormaetxea is the co-founder of Spain’s seventh biggest industrial group, but he potters around Mondragon in a Ford Fiesta and lives in an ordinary flat in this industrial town tucked into a valley in the country’s northern Basque region.
"Imagine how rich he could have been if he had founded a different sort of company," said Kepa Oliden, a local newspaper reporter from this town of 23,000 people. "But you won’t find anyone driving a Rolls-Royce in Mondragon."
Visitors also find little of the new poverty sweeping through other parts of Spain, for up the steep slopes of what locals jokingly call the "sacred mountain" lies the headquarters of the Mondragon Corporation, the remarkably recession-proof company that Ormaetxea helped found in 1956.
There is little flashy about the offices of the Basque country’s biggest industrial company, but then there is nothing normal about what is now the world’s biggest workers co-operative … with global sales of €15bn (£13bn).
Whereas workers at other Spanish companies must answer to shareholder needs – often by sacrificing their jobs – that is not true at Mondragon, which acts as the parent company to 111 small, medium-sized and larger co-ops.
And as Spain struggles through double-dip recession, fierce austerity and 26% unemployment, this is one company that is not about to collapse. Nor has it shed many jobs, with the workforce remaining steady at around 84,000 people worldwide – about a sixth of them outside Spain.
The reason? "We are more flexible," said Emilio Cebrián, the social director at Mondragon’s biggest individual unit – the Eroski supermarket-based group. "When times are bad, we cut wage costs by deciding it among ourselves." And, as owners, they also forsake dividends.
Exposed to a Spanish economy shrinking at an annual 1.9%, Eroski has just agreed a fresh round of wage reductions. Workers’ incomes will drop by 5%-10%. But, unlike other companies where wages are cut while executive pay soars, managers are taking the biggest cuts. Their salaries are already capped at eight times the lowest paid worker.
Wage cuts began in 2009 when most Spanish companies began shedding workers to reduce labour costs – eventually adding 3.5 million people to Spain’s dole queues. Mondragon has not contributed. Average salaries, instead, have dropped by around 5% while members without work are found new jobs elsewhere.
"If a co-op within the group has an excess of members, then we relocate them to other co-ops within the group," explained Mikel Zabala, human resources boss at the corporation’s headquarters.
The crisis in Spain has also forced the corporation to think creatively about surviving the economy’s other major drama – a credit squeeze that has seen many companies close while waiting for clients to pay bills, especially public authorities.
"We invented a new system, doing the same sort of thing that we do with jobs," explained Zabala. "If someone has money left over, and another co-operative has run out, then they can lend them that money."
As a result only one co-operative, employing 30 people making equipment for the lumber trade, has closed. "Some of our most successful companies today are ones that needed help when things were going badly for them years ago," said Zabala. "Now they, in turn, are helping others in need."
Success is not just measured in job terms or in how many companies survive. In the year from 2010 to 2011, sales grew slightly while exports surged 10% to €4bn.
That does not mean life is easy. Conversations in bars and barber’s shops in Mondragon – where almost everyone has a family member in a co-operative – revolve around wage cuts and the difficulties facing co-ops in traditional sectors like white goods.
Among the hardest hit is Fagor – which makes fridges and washing machines in a market where sales have collapsed by 50%. It was founded by Ormaetxea and other graduates from a local technological college run by Roman Catholic priest José María Arizmendiarreta, who urged his students to form co-operatives.
Some recent worker-owner assemblies in the town, where managers present their plans for debate and approval, have been stormy.
"The more exposed a co-operative is to the Spanish market, the harder it generally is," explained Zabala.
Like other European companies, Mondragon is exposed to fierce competition from developing world competitors with lower labour costs. Its response has been to set up factories – or buy companies – in other parts of the world. There are now 94 subsidiaries producing goods from Vietnam to Chile, Morocco and Russia.
Workers at these, however, are not co-op members (fewer than half of Mondragon’s workforce are members) – meaning they are also raw-blooded capitalists, living off the labour of others.
Mondragon is aware of the contradictions of preaching about co-operatives while behaving like a capitalist.
Zabala insists that even non-member workers are treated better than in most companies – though temporary workers, who are the first to go at times of crisis, may disagree. "We do not really know how to behave like simple exploitative capitalists," he said. "Even where we cannot fully behave as a co-operative, we at least try to implant the model of co-operative administration."
"There was a time when we tried hard to get workers who were not members to join," he added. "But it is not that easy. People do not always understand the culture of co-operativism and do not necessarily want to join. Now we do not push so hard." In one fully-owned Mondragon company that recently agreed to turn itself into a co-op, he said, the former union leader is now chairman of a key decision-making board.
And Cebrián says that, by bringing in members from towns and cities far from the Basque country, Eroski has proved that the Mondragon model does not rely on a shared local culture – as some theorists had feared. "Fifteen years ago we might have asked whether it was necessary to be Basque to be a co-operativist. But now we now that is not the case," he said.
But there are no signs yet that the corporation’s 14,000 foreign workers are set to swell the ranks of its 38,000 Spanish co-operativists. That, it seems, is a dream too far.