Mondragon: A path to 21st century socialism?

By Louis Proyect

October 11, 2010 -- On day five of Carl Davidson's visit to Mondragon, he alludes to a transition to a "Third Wave" future by the Basque cooperative. The Fagor pressure cookers might be phased out in favour of "the high-design and high-touch products of a third wave future in a knowledge economy". In order to succeed in this new business, Mondragon would have to develop "new entrepreneurs", according to Isabel Uriberen Tesia, a Mexican on the Mondragon staff.

Davidson has been committed to the Third Wave since 1997 when he launched an online magazine (now defunct) called cy.Rev. Back then I took exception (http://www.columbia.edu/~lnp3/mydocs/computers/cyrev.htm) to some of its major themes, especially the idea of a "third wave" popularised by futurists Alvin and Heidi Toffler, as well as Republican Party leader Newt Gingrich. I summarised the Third Wave as follows:

Put simply, the theory states that there are three important "waves" in social history: (1) rural societies based on agriculture, (2) urban societies that emerged with the industrial revolution, and (3) the information-based world in which we currently reside. The United States is in the throes of this third microchip-inspired wave. Most of its difficulties are the fault of its inability to migrate smoothly out of the "Second Wave" of dying smokestack industries into the promised land of computer networks and knowledge-based industries.

Davidson was also impressed with the ideas of Clinton administration economist Robert Reich, who insisted that an "information revolution" would be the source of new jobs. He wrote:

Reich makes a convincing case that it is both impossible and reactionary to try to prevent the globalization of the market. Instead, he poses a strategic question: Rather than trying to prevent low-wage, low-skill jobs from leaving the United States, why don't we try a policy that would encourage high-wage, high-skill jobs to come into the U.S., regardless of the nationalities of the investors.

Doug Henwood was sceptical of such claims at the time. In a review of James Brook and Iain Boal's Resisting the Virtual Life, Henwood questioned Reich's assumptions:

Is there any truth to Reich's ... blather? How big is the high-tech, infobahn workforce now, and how big is it likely to get? The share of the workforce employed directly in information superhighway kinds of tasks is well under 2% -- and that includes people who design, make, and program computers, chips, and telecommunications equipment. Business purchases of computer and telecommunications equipment totals just over 2% of GDP.

If anything, the era of the Great Recession has made claims about the benefits of the Third Wave ring even more hollow. On September 6, the New York Times reported:

Government labor reports released this year, including the most recent one, present a tableau of shrinking opportunities in high-skill fields.

Job growth in fields like computer systems design and Internet publishing has been slow in the last year. Employment in areas like data processing and software publishing has actually fallen. Additionally, computer scientists, systems analysts and computer programmers all had unemployment rates of around 6 percent in the second quarter of this year.

More troubling, however, was the spirit of entrepreneurialism that Davidson's magazine embraced with even more passion than Ms. Tesia:

In our view of socialism, we affirm the entrepreneurial spirit, the motivating energy of the market and the right of individuals to become wealthy through the private ownership of the capital they have helped to create.

In the light of today's intractable economic crisis that has made terms like "the entrepreneurial spirit" sound positively obscene, it must be understood that the mid-1990s were a period of a deep reaction against the Soviet model that had just imploded. There was a widespread reaction against the planned economy that helped make the ideas of "market socialism" attractive to many. And just as the Soviet Union in the 1920s served as a beacon for revolutionary socialists, so did Mondragon represent a vindication of the beliefs of market socialists. It was proof that the workers could run things on their own—more humanely than the capitalists even in the pursuit of profits.

It was never very clear in market socialist literature what exact purpose cooperatives would serve. There could be no objection to the idea that they serve as proof that the workers can run things themselves. In the 1864 Inaugural Address of the International Working Men’s Association, Karl Marx referred to them as follows:

We speak of the co-operative movement, especially the co-operative factories raised by the unassisted efforts of a few bold “hands”. The value of these great social experiments cannot be overrated. By deed instead of by argument, they have shown that production on a large scale, and in accord with the behests of modern science, may be carried on without the existence of a class of masters employing a class of hands; that to bear fruit, the means of labor need not be monopolized as a means of dominion over, and of extortion against, the laboring man himself; and that, like slave labor, like serf labor, hired labor is but a transitory and inferior form, destined to disappear before associated labor plying its toil with a willing hand, a ready mind, and a joyous heart. In England, the seeds of the co-operative system were sown by Robert Owen; the workingmen’s experiments tried on the Continent were, in fact, the practical upshot of the theories, not invented, but loudly proclaimed, in 1848. -- http://www.marxists.org/archive/marx/works/1864/10/27.htm

But there's also a tendency for market socialists to view cooperatives functioning in the same manner as handicraft manufacturing in the later stages of feudalism, as a kind of inkblot that would spread until it engulfed and overcame the dying system. In an article titled "21st Century Socialism", Davidson's notion of a transition to socialism seems based on this model:

Socialism will be anchored in public and worker ownership of the main productive forces and natural resources. This can be achieved by various means: a) buying out major failing corporations at penny stock status, then leasing them back to the unions and having the workers in each firm—one worker, one vote—run them, b) workers directly taking ownership and control over failed and abandoned factories, c) eminent domain seizures of resources and factories, with compensation, otherwise required for the public good, and d) public funding for startups of worker-owned cooperative businesses. -- http://www.zcommunications.org/eleven-talking-points-on-21st-century-socialism-by-carl-davidson

This is why he has greeted United Steel Workers union president Leo Girard's partnership with Mondragon with such enthusiasm. It would appear to fulfill at least one part of this schema, namely buying out major failing corporations and turning them into cooperatives. One might of course question whether Girard would be better off fighting on behalf of workers politically rather than getting sidetracked in such reclamation projects. A principal obstacle to socialism in the United States today is the same as it has always been, a willingness of the trade union bureaucracy to support the capitalist onslaught on jobs and working conditions in exchange for privileges enjoyed by the trade union aristocracy.

Finally, turning to the question of Mondragon itself. While nobody can gainsay the importance of a major business being owned and operated collectively by the workers, there are real questions about how this relates to socialism. There has only been one book critical of Mondragon from the left — Sharryn Kasmir’s The Myth of Mondragon — and it is essential reading for those trying to understand both sides of the debate.

To begin with, cooperatives have existed under governments completely hostile to socialism. In fact, in 1965 the fascist regime in Spain awarded Father Arizmendiaretta , the founder of Mondragon, with the Gold Medal for Merit in Work.

It turns out that worker-owned businesses have not exactly been anathema to fascist regimes. Indeed, Kasmir makes the case that if political parties and trade unions had been legal under Franco, “political energies never would have been channeled into so unlikely a project as cooperativism”.

And it was not just Spain. While the Italian fascists were initially hostile to co-ops, they got the green light from Mussolini after agreeing to purge Socialists and Communists. In 1927 there were 7131 co-ops and by 1942 the number had swelled to 14,576. Somehow the fascist state did not fear that these “alternative” modes of production threatened the economic system.

Indeed, Mussolini pointed to the co-ops as examples of his corporatist ideals. Kasmir explains this anomaly in terms of how they “embodied worker participation, nonconflictual relations between labor and management, and the withering away of class identifications.” In the fascist system, as well as in Father Arizmendiaretta's Christian-based beliefs, the class struggle is anathema. Joxe Aruzmendi, Arizmendiaretta’s biographer, characterised the priest’s views as follows:

At the root of the class struggle can be found the myth of revolution, faith in violence, etc., that in the opinion of Arizmendiaretta characterize the twentieth century, and that he summarily rejects. The question of the class struggle is phrased, for Arizmendiaretta, as the question of how to overcome it, urgently.

A visit to the Mondragon website will reveal nothing about the class struggle, especially the pitched battles taking place in Spain between the trade unions and the social-democratic government. You will also find nothing about the movement to defend immigrant rights. Or anything about ecology, peace and the rights of national minorities, including the Basque people. For Mondragon, social justice is co-equivalent with the cooperative's ambitions and nothing else matters for much. Even Davidson reports: “Frankly, Basque youth aren't all that active inside the coops. They're into third world global justice issues, environmentalism in general, and Basque nationalism."

Those sorts of issues, of course, have much more to do with our socialist future than the spectacular rise of Mondragon as one of Spain's commercial powerhouses. Those are the sorts of people that will reinvigorate our movement, not those with a flair for finding new markets for high technology products especially in a period when such markets are collapsing all around us.

[Louis Proyect is moderator of the Marxmail discussion list and runs The Unrepentant Marxist blog.]

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Submitted by Paul Chislett (not verified) on Thu, 10/14/2010 - 02:33

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Submitted by Terry Townsend on Thu, 12/26/2013 - 22:52

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Wall Street Journal Dec. 25, 2013
Recession Frays Ties at Spain's Co-ops
Home Appliance Maker Fagor Shuts Factories After Failing to Get Lifeline

By CHRISTOPHER BJORK

The failure of home-appliance maker Fagor has shaken Spain's Mondragón network. Shown, workers outside Mondragón headquarters in November. Christopher Bjork/The Wall Street Journal

MONDRAGÓN, Spain—For decades, the giant network of industrial and retail cooperatives born in this small town was held up as an international model. Whenever one co-op got into trouble, the rest of the Mondragón Corporation would rescue it with cash or take on workers at risk of losing their jobs.

Then the unthinkable happened.

In October, home appliance maker Fagor Electrodomésticos, a global exporter and the U.S. market leader in pressure cookers, shut its factories after the other co-ops denied it a lifeline. That, in turn, has shaken the Mondragón network, the largest of its kind in the world, fraying the bonds among its 109 surviving co-ops and eroding confidence in the weaker ones. Many of its 80,000 employees now fear for their jobs in a country with 26% unemployment.

"This is our Lehman moment," said Juan Antonio Talledo, who lost his job on Fagor's refrigerator assembly line, recalling the U.S. investment bank failure five years ago that nearly brought down the global financial system.

With debts of €850 million ($1.16 billion), Fagor is one of the biggest casualties in Spain's record-setting year of bankruptcies. Even as the economy emerges from its second recession in five years, growth remains too weak to save many deeply indebted Spanish companies.

But Fagor's abrupt closure reverberates beyond Spain. Many scholars in the U.S. and Europe have argued for decades that employee-owned co-ops are a more productive and worker-friendly alternative to traditional shareholder capitalism. The crisis here highlights a weakness: Co-ops have fewer options to raise capital when trying to ride out a recession.

The long Spanish downturn that drained Fagor of resources now threatens core principles of the network it had helped create—democratic management and job security for employee-owners.

George Cheney, a Kent State University professor who has studied Mondragón for 20 years, said the network will survive but faces severe strains. Cooperatives around the world, he added, are watching how it resolves competing demands of employees and lenders, and financial fallout among its members.

The question, he said, is: "How can Mondragón maintain its soul?"

Fagor's 1,800 workers in Spain have lost their jobs and access to savings they had plowed into the co-op. Tajo, a small co-op in the Mondragón network that makes car parts and components for household appliances, says it could face bankruptcy because Fagor bought much of its production. Creditors owed €2.5 billion by supermarket chain Eroski, the network's largest co-op, have told the management to retrench by selling or closing outlets.

"Contagion is inevitable," said Lorenzo Bernaldo de Quirós, head of Freemarket International Consulting in Madrid and a former adviser to Mondragón. "Some co-ops lent money to Fagor. Others were its suppliers. They're all intertwined."

Laid-off workers stage frequent protests outside Mondragón's austere concrete-and-glass headquarters, perched on a hill overlooking the factory town and a lush valley in the Basque region of northern Spain.

Mayor Inazio Azkarragaurizar Larrea calculates that Fagor's closure alone will raise unemployment in the town of 22,000 people to 20%, from the current 15%.

"The town is in a state of psychosis," said Estibaliz Iñurrieta Lauzirika, owner of the Plus Ultra bar, where townspeople fret about the co-ops over evening drinks and talk of little else.

They and their elders had thrived as Fagor, founded in 1955, sold refrigerators, washing machines and televisions to Spain's emerging middle class. Fagor's pioneer entrepreneurs, influenced by socialist thinkers and Christian values, gave financial backing to other factory workers to start their own co-ops, then merged them into a forerunner to Mondragón Corporation in 1984.

Workers in a co-op pool resources and own the business collectively, sharing in profit and loss. Mondragón took the model a step further by pooling individual co-ops' research, training and banking services, and creating a common safety net of employment guarantees and social-security benefits. It grew to be the seventh-largest employer in Spain and reported €14 billion in revenue last year.

Fagor expanded to markets in more than 100 countries, becoming the fifth-largest appliance maker in Europe.

Three decisions exposed Fagor to trouble just before the recession hit Spain in 2008.

The co-op acquired a French appliance company to try to achieve the scale to compete with Whirlpool Corp. and Electrolux AB. But while those larger rivals moved production to low-wage Asian countries, Fagor kept most of its assembly lines in Spain and France to preserve worker-owners' jobs. It could no longer compete on price, and the acquisition raised its debt burden as sales plummeted at home.

Meanwhile, Fagor sank €6 million into the Driron, a refrigerator-size invention that could dry and iron clothes at the same time. A €1,875 price tag and clunky look made it a colossal flop.

The appliance maker had few options to stay afloat. As with other co-ops, its ownership structure legally barred the sale of new shares to raise capital, and its ability to borrow was exhausted. It turned to its Mondragón partners, who injected €300 million into the co-op after 2008.

Fagor also hit up employees, selling them €80 million in high-yield debt on the promise they could withdraw the investments within a month.

That wasn't enough. At a tense meeting of Mondragón's board in September, Fagor chief executive Sergio Treviño, pleaded for an additional €50 million for an orderly restructuring. The aid plan required unanimous board approval, but chiefs of the two largest co-ops, Eroski and lender Caja Laboral, balked, according to people familiar with the deliberations. At the next meeting they voted to rebuff him, saying the plan would throw good money after bad, these people said.

"I warned that if Fagor fell, a tsunami would wash over them, but they dismissed the idea," Mr. Treviño said in a subsequent interview.

Fagor's demise has upended the lives of 44-year-old forklift operator Igor Unamuno and his wife, Leire Barona, who worked on the refrigerator assembly line. In addition to losing their jobs, he said, they worry about recovering the €55,000 in savings they had invested in Fagor—money now tied up in bankruptcy proceedings.

With an expensive mortgage and two children at home, the couple pins their hopes on Mondragón's pledge to find work at other co-ops for at least 1,000 of Fagor's employees. More than 300 have been relocated, most to temporary positions with fewer rights and benefits.

"The days pass, and you hear about other workers getting called in for a [job] interview," Mr. Unamuno said. "You hunker down. What else can you do?"

—Ilan Brat contributed to this article.