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.]

debate Spain United States Basque Country cooperatives

It's true that the Franco regime gave Father Arizmendiaretta an award for the economic success of the Mondragon cooperatives, even if the regime hadn't done much to help them, especially in the begining. It's also true that the Father was imprisoned for his participation in the Civil War on the Republican side, against Franco, and barely got out with his life.

During our stay in Mondragon, we were told about this 'award,' and that Father Arizmendiaretta neither sought it nor wanted it. But given the cruelties and lack of liberties, especially against the Basques, he had to weigh the consequences of NOT accepting it. After consulting with the people of the area, he decided the best thing to do was to accept it, with as little fanfare as possible, so people could get on, surviving and waging other battles of their own choosing.

It's also true, as Mr. Proyect points out, that cooperatives can and have existed under many systems and forms of rule, and can be imbued with varying content. But what's his point here? We're talking about these coops, concretely, not some from Mussolini's time or the feudal era. Despite the one outlyer book he cites, there are dozens of others that make the case that the MCC coops are imbued with the values of working-class democracy and respect for human rights at their very core. The politics of the workers in MCC run the gamut of left to center in Basque political life, even if MCC itself is officially nonpartisan. To claim that the Mondragon coops and their owners don't care about minority rights, the environment or the rights of immigrants is simply slanderous, and the opposite was shown in the articles that I wrote.

So why would Project want to suggest that MCC and its founder are not anti-fascist? Or that their achievements in working-class mastery of the productive forces, along with major achievements in innovation and new technologies, are not a valuable piece of the puzzle of what might make up 21st century socialism? Frankly, I have no idea, other than the prospect that Proyect is simply self-imprisoned in old ideas.

As for the transition from the second wave to the third wave brought on by the revolution in the productive forces some decades ago, and its ruthless use against the interests of the workers concerned, I've written a great deal about it. Along with Jerry Harris, I've produced a book on the topic, 'CyberRadicalism: A New Left for a Global Age' (see http://stores.lulu.com/changemaker ) and Harris has gone on to produce 'Dialectics of Globalization. I live in an area, the Rust Belt of Western Pennsylvania, that is the 'poster child' for the destructiveness and human suffering wrought by this process. We know several things for certain: the old mills are not coming back, the new productive jobs that have been created and will be created are in high design and high technology (and in the construction of infrastructure to support them), and that the number of new jobs of this sort will never approach the number that have been displaced. At best, low-wage 'Walmartization' service jobs are what the system has to offer for most young workers who manage to secure employment at all.

These are precisely the main points made in our eight issues of cy.Rev, until we folded it over into http://solidarityeconomy.net some years ago. I think our analysis holds up rather well. The steelworkers union today, for example, has made a point of bringing younger high-tech workers into the union, and is working tooth and nail, not to bring back old open hearth mills, but to fight for the new high skilled factories needed to make the transition to the green manufacturing and sustainable clean energy infrastructure of the future. The USW has gone on to build the Blue-Green alliance off of its experience in the 'Battle of Seattle' a decade ago. They've made a start in our state, with three wind turbine factories created with the Spanish firm GAMESA, which have brought about 1000 USW jobs to our area. That's a drop in the bucket compared to what's needed, but it points in the right direction for major structural reforms worth fighting for. Apparently, that's an approach for which Proyect doesn't care all that much.

Obviously, a lot more needs to be done to develop a winning strategy and tactics for the working class and its allies, not only for the battles of the part and the moment, but also for the whole and the future. But I plead guilty to thinking that the USW's decision to engage Mondragon in trying to develop new alternatives is a welcome break from the trade unionism of past decades. It may not be to Proyect's liking, but it certainly is to mine, and a good number of others as well.

So why would Project want to suggest that MCC and its founder are not anti-fascist?

---

My point was that the fascist government was not anti-coop, not the other way around.

I participated in the Coop movement in the USA back in the 1970's. Some cities like Minneapolis had so many coop's that they had a Coop Assembly to deal with larger issues and a coop newspaper that I worked for briefly. Every city and college town had food coops that brought organic foods to consumers. Most of these coops required paying dues or participating staffing the storefront several hours a month.
Most of these Coops disappeared in the 1980's and 1990's as the Whole Foods privately run, gourmet foods model geared to the wealthy middle aged consumer market replaced the more idealistic and less capital intensive Coop models.
While there is a coop movement in the USA it is under the radar for most of us now and compared to the propaganda that private capitalist enterprises get, you would not even know there was a coop movement in the USA now. We can blame the corporate media, but also because coops don't threaten capitalism except when there is a revolutionary coop movement like the Anarcho-syndicalists of 1930's Spain.
Coops that simply ease the pain of Capitalism for some of the more sensitive souls, the Owenites of this century, are not likely to overthrow capitalism.
There used to be a saying among my ultra leftist friends for coops we called it "Self Managed exploitation". The idea being if we are going to enter into capitalist relations, it would be more honest and less confusing to accept traditional adversarial relations as workers for a traditional capitalist boss, rather than muddy the waters in a worker coop under capitalist conditions.
There are arguments to counter that, the old seed of change in a dying capitalism, which in the case of the food coops simply provided a model for a new capitalist market.
Transformation to a socialist world is not going to be done overnight, but it is also not going to be done until international capital is brought under social control.

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

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In Windsor, Ontario, Canada, across the border from Detroit, the co-op movement is gaining some traction. There is a painful transition from the idea of corporations delivering waged jobs to eager workers to the idea of taking control of our own economy. The cooperative movement has a stronger presence in Canada compared to the US, but there is a long way to go given the power of the neo-liberal onslaught.

The thing is that when workers have economic power, does political power follow? The political economy of the working class must be viewed as a whole. The Coop movement is not just an economic ideal, it is a form of social justice and that is a political ideal that can transform society into a socialist model.

As one who studies communication at the University of Windsor, it is the media as the propaganda arm of the neo-liberals that is stunting the mobilization of workers (next to apathy generated by consumerism and easy credit). Therefore, media coops ( such as The Dominion http://www.dominionpaper.ca/in Canada)are needed to act as an education arm of a new movement. If history has taught the working class anything, it is that people have to be allowed to come to an idea seen as radical on their own, by their own.

Mondragon coop gets credit-wise to beat the crunch

By Amanda Cooper - Reuters

Sharenet (South Africa) June 28, 2012

http://www.sharenet.co.za/news/Mondragon_coop_gets_creditwise_to_beat_t…

MONDRAGON, Spain, June 28 (Reuters) - As the financial crisis seeps ever deeper into Spain's economy, pushing unemployment to 18-year highs and drying up business funding, a cooperative group in the Basque country has found a way to keep the cash flowing.

Cooperatives, unlisted and owned by their members, are, in this region in northern Spain, touted as nimble operations that can more easily adjust to changing conditions, more willing to take salary cuts or move staff around when necessary to preserve jobs.

"We are the owners; we have to tighten our belts, cut our salaries, or whatever, to keep our jobs and not disperse like many private companies that stop investing here," said Mikel Lezamiz, a senior director at Mondragon, the world's largest cooperative and Spain's fourth largest employer.

The Mondragon group - more than 130 cooperatives, including a major supermarket chain, a savings bank and manufacturers making myriad products, from washing machines and car parts to machines that fabricate solar-panels - has also come up with a solution to the credit crunch. Pooling cash.

A property crash has left Spain's banks in need of up to 100 billion euros in European aid, and the country's sovereign bond yields have climbed to their highest since the launch of the euro nearly 14 years ago. Banks that are focused on increasing their capital to weather the storm have choked off lending to companies.

So Mondragon and its network of coops - headquartered in the town of the same name in the green, hilly heart of the Basque Country - are bypassing the banks by sharing their spare cash.

"Back in the '70s it was standard practice (for coops) to swap people; we've always done that. But transferring cash from one coop to another, we'd never done that before. Each coop had to sort itself out, going to the banks, asking for credit lines and so on," Lezamiz said.

When the euro zone crisis began to unfold in May 2010 with Greece's first bailout, companies around Europe found that the trillions of emergency dollars injected by central banks to heal the 2008 credit crisis were wearing off.

To avoid any part of the group defaulting on payments to suppliers or delaying wage payments, Mondragon asked its coops to funnel spare liquidity from one to another.

"At first, it was tough to convince them to give cash to one another, and now it's par for the course," Lezamiz said.

"When you think that we can transfer people - who need training, who might feel an affinity for their own cooperative - elsewhere, that process should be more complicated than sending half a million euros from A to B."

LIQUIDITY POOL

With nearly 100,000 employees and 343 million euros in operating profit last year, the group has a strong emphasis on training, as well as research and development and a bustling export market, traits that define many Basque companies.

Indeed, the industry-heavy Basque economy has outperformed Spain's national economy fairly consistently for the last few years, and even though it has not escaped the recession, it still has the lowest unemployment in the country, at just over half the nationwide rate of nearly 25 percent.

Mondragon is an export-led business. Around 70 percent of its production is exported to 149 different countries, but Lezamiz said performance varied greatly within the group because some companies were more exposed to the struggling home economy.

Fagor, a leading maker of kitchen appliances that exports to about 130 countries but still relies heavily on the domestic market, has cut production of its washing machines by more than half, and its workers agreed almost unanimously to take a
7.5 percent paycut.

Meanwhile, Mondragon's supermarket chain, Eroski, is Spain's third-largest and in May reported profits of 42 million euros for its fiscal 2011 and has recorded a drop of 30 percent, or just over 1 billion euros, in its overall debt levels over a three-year period.

The name of the game right now is not creating jobs, it is about maintaining them, Lezamiz said.

"People have to be at the centre, and their work is what must have value attached to it. Capital, that is just a resource, a tool."

(Additional reporting by Vincent West; Editing by Fiona Ortiz and Will Waterman)

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.

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