Notes from Mondragon

This is a collection of raw notes from an October 2009 trip to visit the Basque Country. For a narrative travel journal please start here.

For those of you who really want a lot of detail about my recent trip, I am posting the typed but raw notes that I took. A couple of disclaimers: First, it was an overwhelming flood of information (nearly 10,000 words). Second, my handwriting is not the greatest and I’m not the best notetaker in the world. Third, I typed these up roughly a month after I took them, so in some cases I wasn’t able to decipher whatever I wrote. So please do not quote me on any of this (and yes, I know this is the internet). This is for entertainment purposes only, and should not be taken as any sort of reliable factual account of details. Enjoy, but check your own facts.

Mondragon Study Journal

By Andrew McLeod

MMCCU 5550, Exemplars of Cooperation – Mondragon

October 12 – Arrival

I’m overwhelmed, and the actual co-op tour hasn’t even started yet.

I didn’t sleep much on my flights, mostly due to an enthusiastic young kid sitting next to me who kicked and elbowed me several hundred times, but made up for it by covering my lap with part of his blanket.

Barcelona was great. I had eight hours of layover, so I took the train into town to check out this amazing city, attended a Spanish mass, dipped my feet in the Mediterranean, boggled at architecture, and saw my first piece of co-op litter.

I should explain that last bit: I am in Spain to visit Mondragon, and the huge system of worker-owned cooperatives based here. Among their many achievements is the creation of Spain’s second-largest chain of grocery stores, called Eroski (which means “group buying” in the Basque language).  Barcelona has dozens of locations of their sister co-op, Consum, although I somehow managed to miss all of them. However, I did see an Eroski brand juice box on the sidewalk.  And yes, I picked it up after I snapped a photo.

In Bilbao, I met my cohort at a hotel that is part of Best Western, a U.S. based marketing co-op; it struck me as ironic that this would be our first co-op visit. After a brief orientation, we went out for a brutal dinner that lasted from 8:30 to midnight, followed by several hours at a discotheque. I had none of my usual jet-lag insomnia.

Before we left Bilbao, I wanted to check out the Guggenheim Museum. It is an amazing structure by any standard, but I had a special appreciation for it because this morning I learned that it was built by cooperatives. I don’t know the details yet, but apparently the general contractor was one of the co-ops we are here to study and the steel beams were manufactured by another co-op. By working together as a consortium, they were able to take on a huge and complex project. Presumably many co-ops were involved, and they collectively did most of the work, but I’ll have to find out.

The Basque Country is the most affluent region in Spain, and has an income level roughly 40% above the European average. This was clear pretty quickly. While I saw numerous people begging in Barcelona, I didn’t see that in Bilbao. But the area’s wealth became even more apparent after we left the city. It is a rugged country, which reminds me a lot of the coast of northern California. And it is not without old scars from the severe recession and deindustrialization that hit Spain in the 1980s – I saw several abandoned factories with grass growing on their roofs, and one large furniture store going out of business from the current crisis. But there appears to be generally good health, and the freeways are amazing; the main route to Mondragon is mostly double-bore tunnels and elevated interchanges for about 20 km.

We left the highway and headed up a typical curvy scenic mountain road alongside a small lovely river, toward the town of Onati.  But then something funny happened: We passed a large newish factory. Then another. Then another. And so on.  This beautiful, remote town had a healthy manufacturing sector, with close to a dozen new or recently expanded factories, most of which were from two cooperatives, Fagor and Ulma.

To really understand this, I have been trying to compare the Basque Country to the area roughly encompassing the Sacramento area to Lake Tahoe, between highways 50 and 80.  The Basque Autonomous Community is roughly the same size and a somewhat larger population (3 million). The closest parallel I can imagine would be that there is a freeway all the way from Sacramento to Lake Tahoe and factories are springing up like daisies in Sly Park, Camino and Colfax (all of which are also connected by expressways).

We continued past Onati to our hotel for the next four nights. It is not part of a co-op, but I’m going to let that slide because it is in one of the most powerful settings I have ever encountered. It is perched above a gorgeous mountain canyon, with a view of one of the Basque Country’s highest ridges, which features a line of giant wind turbines that somehow only added to the beauty.

We are in Arantzazu, which is a major Basque spiritual center. It is also home to the most amazing church I’ve ever seen (yes, including Gaudi’s Sagrada Familia, which I saw yesterday). The structure is a collaboration of several giants of Basque contemporary art, and it is just stunning. It is also currently being renovated by the co-op Ulma and one other firm. http://www.arantzazu.org/

These co-ops are everywhere, and tomorrow, finally, we are going to the place it all began. Just over 50 years ago, five graduates of Father Arizmendi’s community-based trade school bought the license to open a factory making paraffin stoves. Now they’ve got a model for the world. I’ve wanted to see this for years, and for the next week I’ll be immersed in it.

October 13 – Introduction

The headquarters of the Mondragon Cooperative Corporation (MCC) is an impressive place. It is clearly a corporate campus, with close to a dozen large buildings, housing the major central institutions of the system: the bank, social services, research and development, the polytechnic school campus and student cooperative.  It was a foggy morning in the valley, so we did not realize that the town is bordered by some spectacular ridges and a couple of high rocky peaks.

After a round of introductions, our host, Mikel Lezamiz brought us into a small theater where we watched a 15 minute movie on MCC. Once again, I was overwhelmed. The movie was slick and a little bit loud, with hip background music and a soothing accented narrator telling the history and successes of the system.

It felt like a PR piece for GE Capital or something, but it was all cooperatives.

They’ve built and designed bridges and high-rises, made most types of car parts and the machines for making the rest (although they’ve apparently been smart enough to avoid making cars themselves), washers and driers, bicycles, buses, technical assistance to other corporations. The list went on and on and on, outlining the products offered and tallying up the billions of Euros generated by each division.

MCC is made up of roughly 150 separate enterprises, whose unfamiliar names make them difficult for me to keep straight: Ulgor, Ederlan, Goizper, Danobat, Biurrarena, Batz. They are divided into four main functions: industry, retail, services, and knowledge. Industry is further divided into groups around consumer goods, capital goods, business services, construction…

They do just about everything, really.

– Mondragon Internacional

After the movie, we were joined by the director of their international operations for the Amerias, Fernando Fernandez de… , who was fairly candid about this controversial part of their development. To address competition in the globalizing economy, MCC has resorted to opening subsidiaries throughout the world. These firms are not cooperatives, although Fernando claimed they are very scrupulous with these firms and would cut off relations if they were found to be abusing their workers. Most of these are found in the world’s notorious zones for cheap labor, but it is worth noting that both the U.S. and U.K. are home to more than one MCC subsidiary.

They have roughly 14,000 such workers; this is a sizable portion of the overall workforce, and more importantly a major source of cash flow that provides essential support to the system’s cooperative core.

I was surprised to learn that they have experimented with elements of cooperatives at a firm in Mexico, and the early results have been encouraging. However, each subsidiary is linked to a single cooperative within MCC, so it is far from certain that successes in one subsidiary will be copied throughout the system.

I asked whether they had ever explored working with employee-owned firms in the U.S., and was surprised at his response: they are not cooperatives. That is certainly true, as most ESOPs are not democratically controlled. But some are, and some cooperatives could be capable of expansion or joint ventures (perhaps this approach could have saved Burley). It is odd that they have no qualms about working with totally non-cooperative firms, but disdain firms that have some elements of cooperatives.

I was particularly struck by how Fernando was completely unapologetic about whether they would close an underperforming international subsidiary, asking rhetorically, “What is the point of keeping it open if it is losing money?”

Mondragon is ultimately run by businesspeople. They make no bones about it, and this may well be a key factor behind their success. They operate based on higher principles than most enterprises, but they also realize that they have to make money or the whole project will be for nothing.

- Situating Mondragon

We then drove across town to the Otalora training center, where MCC runs its Executive MBA program, seminars, and visitor programs like ours (roughly one week-long tour per month, plus 6,500 other official visitors last year alone). The center is housed in a deliciously ironic 14th Century manor house of the Otalora family, who used to control trade through Mondragon’s river valley, which was a key route from the coast to the interior. The cooperative bank (Caja) bought the land during the 1970s and opened the center in 1984. There we got a more general orientation to the internal structure of the system, with a focus on the internal functions shared by the various cooperatives.

Mikel explained how the profits are distributed: About 1/3 of gross profits goes to education, and an emergency fund for workers in need.

We had wine with our large and rich lunch, and this did not help the usual afternoon drowsiness. So we drank espresso to balance things out. This would later prove to be the normal routine, and I sometimes wondered whether the constant intoxication was part of some sort of cooperative reprogramming.

- Eroski

Then we were off to the headquarters of Eroski, which is MCC’s largest, fastest-growing, and most complex cooperative. Begona Larranaga gave us a presentation that was full of information but somehow left me with more questions than when I arrived.

Eroski – which is Basque for “group buying” – was originally formed by the merger of ten separate consumer cooperatives in 1969. Since then, it has grown into a behemoth with nationwide reach (and a few stores in France and Andorra), a 13-14 percent market share in grocery and household items.

Eroski is internally complex even from a simple business standpoint. It operates everything from tiny corner stores up to massive hypermarkets, but also gas stations, travel agencies, and stores selling perfume or sporting goods. They now have roughly 2400 separate locations, employing 42,000 people. Of these, roughly 1/3 are owners, with a large minority of that group located outside the Basque Country. In many cases, Eroski builds a shopping center when it wants a new store (presumably employing other cooperatives) and then rents out the other spaces.

Eroski recently bought up a major competitor, and workers at all stores are given a chance to vote whether to become a cooperative store. But in addition to its major role in the growth of overall worker-owner membership in MCC, Eroski is also dabbling in consumer ownership, offering shares for a nominal price of 1.20 Euros. These consumer members can elect their peers to half of the seats on Eroski’s governing council (equivalent to the board of directors), and can give input through other channels. However, I found Eroski not to be a particularly strong or impressive form of consumer ownership.

As much as I hate to make this comparison, Eroski is a sort of cooperative version of Walmart. I’m not comparing their overall business models, and Eroski’s treatment of workers is a polar opposite to that of Walmart (whose employees’ pay is so low they sometimes qualify for welfare). But from the retail floor, it looked like a giant big box store full of really inexpensive products. And some of these prices are possible because Eroski has formed an international buying group with leading retailers in France and Germany (alas, not cooperatives themselves). There were dozens of checkstands, and we weren’t even in one of their biggest stores, which have up to 60 lanes.

When I visited consumer co-ops in Italy last year, I was amazed by how they could provide organic fair trade products for prices that competed with conventional products. At Eroski, they have toothpaste for 0.99 Euros and deodorant for 0.95; but these did not seem to be particularly high quality and certainly weren’t produced ethically or sustainably. It seems that Eroski’s main focus for its house brand is price. They do it well, but I’m not sure that’s enough.

All the same, I think it is better to have Eroski than not. They are capturing a large market share and providing a valuable outlet for cooperatively made goods. And if there is going to be a giant and growing retailer, it might as well be part of a larger cooperative system. The same goes for their international operations. It would be better if they converted those into co-ops, but at least for now those workers have a scrupulous parent corporation owned by members of a historically oppressed minority.

Of course I would prefer that they make all of their stores cooperatives, and extend the opportunity of membership to all employees. And certainly I would rather that they focus more on quality and sustainability. But the fact remains that they have created an ownership model that is a work in progress but still far beyond anything found in North America.

I’m willing to cut them a break, but I’m not willing to leave it at that. MCC is a model with serious shortcomings. It is a serious attempt to apply idealistic principles in the real world, and it is doing a pretty good job of that. But the next time something like Mondragon is created, its members should learn from MCC and create an even better expression of cooperative values and principles. That’s how we can build a new future.

October 14 – Caja Laboral

We started with Angel Garcia of the Caja Laboral. He gave us an overview of the bank’s structure and numbers for quite a while, as well as an explanation of how they have expanded outside Euskara, and plan to continue doing so. Aaron, Lynette and I shared a knowing glance when he talked about how they open clusters of branches in one city simultaneously – it was straight out of the Starbucks playbook.

Then he had a fascinating tangential discussion with Mo about Vancity’s size, and it was interesting to see how two organizations of roughly the same size (measured in assets and staff) cold have such different structure. Most remarkable was the Caja’s 401 branches vs. Vancity’s 60 branches. In the process of this chat we learned a bit about the Spanish work week and general rhythms of life.

Then we got to some really interesting stuff about customer satisfaction survey that ranked the Caja first out of 105 European banks, dethroning a plummeting Deutschbank. He also told us a lot of interesting information about the Caja Rurales, which are credit unions found in many regions of Spain; the Navarrese Caja happened to rank #2 in the same survey. Also interesting was a passing mention that “most” of the Caja Rurales do not have employee ownership; I want to find out which ones do.

The Caja Laboral does not seem to give any favoritism to cooperative banks in its dealings; it deals with all sorts of banks (including Lehman Brothers), and has more than $3 billion Euros in international trade, including an “Asia sourcing” program. Even more interesting was their stance toward the Caja Rurales: they have no compunction about moving into another cooperative’s territory, and the feeling seems to be mutual. When asked about whether this was so, his facial expression gave the sense that the only possible answer would be yes – as was confirmed in a later presentation, the principle of intercooperation only applies within MCC.

Another area in which they don’t play co-op favorites is their Gaztempresa Foundation, which has helped start more than 2000 new companies over 15 years. Some of these were cooperatives, but far from all.  However, this is very consistent with the MCC mission statement, which is to “create wealth within society, preferably through membership jobs in cooperatives.” (emphasis added).

- Miscellaneous Interlude

Mikel then returned to the front. After telling us about how many bike races have been won on Orbea cycles lately, and entertaining my questions about their product line and US production so I can pester REI, he gave a bit more detail on MCC’s numbers, variations on joint ventures, and how it views member engagement.

He also told us about a fascinating arrangement used for Eroski’s purchase of Caprabo: After getting 40% from internal sources, they went to other banks for loans, and for collaboration in creating a subordinate debt fund of 130 million Euros.  They joined with four other banks to offer depositors the chance to invest 1-10K Euros, with a return of base plus 2.5 percent. It was quite a process, and I’m sure it was complex enough to send about a dozen lawyers’ kids to school. He mentioned 50 million as the likely break-even point.

After briefly addressing MCC’s values (cooperation, participation, social responsibility and innovation) and ten principles, we learned of another interesting financial development. We’d previously heard that the pay ratio within the system was 6:1 or less. That is generally still true, but the Caja CEO gets 8x base and the MCC CEO gets 9x base. It seems that there is an ongoing erosion of wage solidarity, and this is likely to cause tension in light of how controversial the move from 4.5:1 to 6:1. Although it is still nothing like the capitalist standard, it is not going in a good direction, particularly in hard times.

Fagor did a joint venture with a German firm in Bergara, in which half of the workers were Fagor members to start, and now the number is up to 90% members. They also started with co-managers from each party, but now there is only a Basque. This transition toward MCC ownership and control is not always possible; for example, all subsidiaries in India are legally required to maintain majority domestic ownership.

-       Culture Change

Mondragon recognizes that organizational systems do not lead directly and automatically to organizational results. It is necessary for people and culture to be involved, and they form a filter through which ideal systems become real in the world.

Mikel showed us a slide containing a startling statement, that MCC training uses “explicit and proactive management of culture” (I knew they were up to something with the wine and espresso!) to create organizational efficiency and coherence around their strategic focus. I pressed him on this, to find out whether a new worker is told that their culture is about to be managed, but it turns out that this is something that is only made clear to leadership, and the slide in question is shown primarily to new directors and members of the governing council. I know that my own culture would rebel against such management, and I’m curious to know how shop floor workers would respond to this language if it were openly spoken.

MCC recognizes that management style plays a major role in cultural development, and cited Cooke & Lafferty (2002) as having correlated certain characteristics with performance. This operates on several levels: First, there is a concealed (intangible) level of real values and beliefs, which are expressed through declared mission and values.

This sets the stage for the visible level, which includes sources of messages, operating culture and results. Sources include behavior, symbols (such as private offices or separate dining areas for the elite), and systems. The culture may be constructive, passive/defensive or passive/aggressive. And results may be expressed through rewards to individuals, teams, or the organization as a whole. Mondragon seeks to avoid elitist symbols –by referring to “collaborators” rather than “subordinates” create a constructive culture, and issue rewards collectively – for example, by sending a team on a trip together rather than issuing individual performance bonuses.

Management is viewed as falling into two areas. First is technical knowledge, which is assumed to be present in a management candidate. Second is who you are, and how you act and feel; ironically, this is assumed to need some work for everyone, and in an ongoing manner. To track managers’ ongoing development, they use an evaluation called EQFM, which is not compulsory but is used by all co-ops with a 70% response rate.

-       Blue Collar Perspective

Some of our readings for this class described problems of dissatisfaction among rank and file MCC worker-owners. And while MCC seems to be fairly candid about its shortcomings, I was pleased that we got the opportunity to speak with Aitor Garro, a 34-year old worker who makes aluminum car components at Fagor-Ederlan. He has worked there for 13 years, and his parents both worked for cooperatives; co-ops are normal to him, and he seems to take them somewhat for granted.

I had wondered how the workers were selected, seeing some risk for a source chosen for their sycophantic qualities. However, it seems that the main criteria (beside a grasp of English) was willingness to be grilled by a bunch of foreigners in their own language; Aitor was apparently unique in this confluence of characteristics. I was still mindful that Aitor would surely be considering the possibility that his manager and Mikel might discuss what he shared with us, and would therefore be hesitant to criticize MCC. I would have loved to get an unfiltered view, but Tom assured us that was not possible.

The dynamic was a bit odd and troubling. Although we were supposed to hear from Aitor, Mikel repeatedly entered the conversation with details that were somewhat tangential to the topic at hand. This felt like a subtle devaluation of Aitor’s perspective, and a preference for official hierarchical channels of information; perhaps Mikel had reservations about this particular session.

Aitor feels like the factory is too big – with 1400 workers – to really have much influence; he does feel like an owner, but not in the sense that he can personally change things. He is not aware of anyone who is working on the shop floor and also sitting on the governing council. More discouraging, when he and his colleagues are talking about what should change at work, the idea of someone’s joining the council is not considered – nobody wants to serve and those who do are apparently seen with some suspicion.

His participation is primarily through two monthly group meetings. One is a simple informational meeting that is primarily a one-way flow of information. The other is more interactive, and seeks to gather information for the social council. He finds meetings to be useful, as they provide an opportunity for him to discuss things with management.

Aitor said he would choose social values over more money, and did not hesitate to give that answer. Father Arizmendi is a key figure in local history, and his values are taught to all schoolchildren. On the other hand, he wondered whether that will become less of a factor with each successive generation. And when someone posed the question as a specific choice between co-ops and another 5000 Euros, he had to stop and think for a while; I’m pretty sure that 10,000 would be too much temptation to resist.

Of course, most of the jobs in the Alto-Deba valley are in cooperatives, so that is a fairly unlikely hypothetical prospect. Nevertheless, Aitor is a clear example of the hazards facing cooperatives that outlive their founders; members are increasingly unaware of the conditions that led to the cooperative’s creation, and may be more vulnerable to demutualization attempts.

October 15

We started the day with a little tangent on a couple of co-op conversion attempts. First, when Fagor abruptly moved into Brazil to serve GM’s plant there, they tried to convert three subsidiaries (there, in Mexico, and in Italy). There was a pilot project from 2005-2008, but it is apparently on hold due to the financial crisis.

We also learned about the Tafalla plant, which is 50% owned by Fagor-Ederlan and 50% owned by the workers there. It is undergoing a several-year transition as workers are given a chance to join, and has recently become a lightning rod for controversy (including some graffiti that we’ve seen: “MCC, Fagor…Where is your solidarity?”) The current proposal is to reduce pay of worker members by 8%; non-members are covered by a union contract that prevents this solution, so job cuts are necessary.

-       Alecop

We heard from a full-time worker named Koldo Etxezarreta and a student named Janet who is a visiting student from Colombia. Here again I saw a dynamic of deferral to those in perceived positions of authority, as Koldo sometimes took over for Janet while she was presenting. This has me wondering whether MCC’s preference to not use language like “subordinate” is papering over the deeply-socialized hierarchy.

In any case, Alecop (Actividad Laboral Escolar Co-op) has been around since 1965, when it grew out of the polytechnic school. It offered both training and experience, as well as financial assistance to students. One testament to the overall economic success of MCC is that its latter function is much less in demand these days, as most families can afford to fully educate their children; the criteria of offering jobs based on financial need has been abandoned.

Alecop works as part of the Engineering and Services group, and has two kinds of members: Fifty permanent members provide support for about 350 student members. It creates jobs both internally (100 students work at Alecop) and externally (250 work at other plants, which is paid work that results in cashflow from that co-op to Alecop). It is both developing and building its own product lines and making part for Fagor and other co-ops in its group. Alecop was initially all students, but that proved impossible to maintain.

Students must be matriculated in an MCC educational facility, and makes a salary of 550 Euros per month for part time work assisting with production processes (up to 18 months duration). They make a fractional capital contribution of about 600 Euros, and take part in profit distribution and collection of interest. Student members are represented only in 1/3 of the co-ops social organs, with permanent workers given more power to go with their responsibility to maintain a stable long-term cooperative workplace.

A degree takes 3-5 years to earn, and students can come and go to Alecop as they need. Numerous fields are represented, ranging from receptionist to automotive design and assembly. These are assessed through four training competencies: technical, methodologic, participative, personal. And each student progresses through four levels of competence in each of these: simple task, teamwork, team leader, and firm leader. Each available job has set competence levels. Students pass through a multi-stage process with a monitor guiding their progress.

One might expect a co-op that specializes in training youth to be a loss-leader of sorts, but as it turns out, Alecop is self-sufficient and it has been profitable in 42 out of its 44 years of existence.

-       Training at Mondragon

Juan Ignacio Aizpurua walked us through the trainings given to governing boards, which take up the first two years of each four-year term (did anyone say “culture management?”) Considering that there are 7-9 people per body, with over 100 cooperatives, there are always 250-300 trainees. This gives Otalora a degree of job security that is somehow apropos to its sturdy facility. Incidentally, Otalora is self-managed and has its own budget, which is funded by the system as a whole.

The training period has two modules. First, weaknesses are identified through a self-assessment tool, resulting in an action plan; second, competence is developed in areas including teamwork, communication, and decision-making. This is followed by monitoring and a second self-assessment. Each training module section ranges from 4-20 hours, and the total training program is over 100 hours. Sometimes special trainings are offered, such as for chairs.

General governing board responsibilities include one meeting per month, plus special topic meetings. After the end of a board term, a member returns to his or her old position.

There are three general fields of competence:

1: Representing the co-op.

  1. Acting with integrated vision (co-op beyond four walls, as a part of society, people forget about values when times are good)
  2. Active inter-cooperation
  3. Representing the co-op in the world.

2: Governance

  1. Need to feel burden of responsibility
  2. Make decisions as a group
  3. Develop institutional democracy

3: Delegation (about acting and doing things)

  1. Agree on strategies and guidelines (more easily said than done)
  2. Collaboration with the management of co-ops
  3. Supervise management

The self assessment has 44 questions related to nine skills. I noticed that the lowest scores were in intercooperation and strategies, although it is not clear whether the sample shown is representative of their overall mix of new board members. While they do provide training, they also expect board members to be fairly well-established and familiar with and to their colleagues; it would be curious if inter-cooperation is indeed the weakest link for incoming board members.

In MCC’s perspective, training is not just about knowledge. It is also about trust and the synergy that comes from knowing each other. They have experimented with radical trust building exercises like requiring trainees to feed each other at lunch – that proved to be a bit much, and while the participants didn’t want to starve, they were scared of that activity.

There is generally a 50/50 split on governing boards, between managerial and shop-floor workers. This ebb and flows, but tends to stay about even.

-       Mondragon Assembly

Our visit with Xabier Otaito was arranged somewhat on the fly after Fagor canceled, but turned out to be an extremely interesting look at how an MCC co-op engages the global economy. This firm makes assembly lines for high-tech products, with a special emphasis on solar cell production. I found it curious that they don’t actually make solar cells (too difficult) but content themselves to make the tools with which other firms attempt to make solar cells. It is perhaps related to their general business savvy, and especially the MCC system’s decision to stick with making car parts (and assembly lines thereof), and avoid actually getting tied to the production of a car. In the past decade they’ve shifted from 75% automotive to 75% solar without ever really planning to do so, which would be quite a trick for Ford. I guess this is where it pays to be part of these nasty little “post-Fordian” production networks. But I digress…

MA works in 11 technologies, and while they generally create products that are proprietary for the client, their work in solar has shifted so they keep that expertise in-house. This works well for everyone, since the next time a client comes back, MA has been busy improving its product. It sounds like it is resulting in some really cutting-edge stuff. They also have Iker-lan in their corner, working on organic cells (!) and share their building with Konika, which does market research and surveillance of its own.

Because they are part of MCC, and essentially a small multinational, MA is able to take chances, and be taken seriously. They like to establish long-term relationships with clients (essential, when their products can take years to develop and deliver).

We also got a look under the hood of a specific co-op. Members start with a year of provisional membership with responsibilities but not full membership. Their structure is in flux: 15 years ago there was a multi-level hierarchy, but they’ve moved to a flatter system, in which even the CEO does not have a separate office (this is an example of the “symbols” of culture creation that we heard about earlier).

The financial crisis has been difficult for MA, since their business is highly dependent on other businesses expanding their manufacturing capacity; this is not happening much these days. This is providing an opportunity to see the cooperative difference. Aitor said that a typical corporation would simply lay off workers, but they’ve opted for salary reductions. He acknowledged, however, that they might have to let some workers go to save the jobs of the rest.

More challenging (as we discussed informally after the visit) their business model is based on global production, in which millions of identical pieces must be churned out to pay for the means of production. This might not fit well into the growing necessity for locally-based economies, although it seems that solar cell production is as likely to succeed as anything.

After the presentation, Aitor took us on a tour of their production floor. About a dozen workers were about six months from finishing a 2.5 million Euro assembly line that will crank out electronic interruptors (little plastic and metal gizmos about one inch cubed) by the million every 1.2 seconds. It was about 50 feet long and it took me a long time to even figure out what they were doing. It felt like the start of the movie 2001 Space Odyssey where the primates are trying to figure out the monolith.

October 16 – Mondragon U w/ Fred Freundlich

Mondragon University has evolved in stages over the years. Its genesis is the polytechnic school (1943), whose early graduates founded Ulgor in 1956. In 1960 this expanded to include the business school Eteo. In 1976 humanities and Basque language were added to the curriculum. An executive education program began in 2001.It has spun off other MCC institutions like Ikerlan, Aleop, and Saiolan.

It is somewhat unusual in its format, as three-year universities are disappearing in Europe, making way to 4-5 year programs. This is part of a larger dynamic called the Bologna Process, which Freundlich describes as bureaucrats setting a single model for how universities should respond markets. MU’s focus is also somewhat different; Freundlich describes most European universities as having a philosophical/theological focus, but MU is firmly rooted in technical skills, with three areas of study: engineering/technical, management, and humanities. It is also clearly secular in its atmosphere. MU has not generally been research-oriented, but the Bologna plan is requiring more emphasis on research.

MU is currently struggling with a sharp drop in enrollment. In the past five years, the student body has shrunk from 4000 to 3500, primarily as an echo of Spain’s recession during the early 1990s in which birth rates dropped.

MCC has a strong emphasis on experience – indeed, it calls itself an Experience – and therefore its founders did not put much value in teaching cooperation in a classroom. But after 20 years there was a partial shift: cooperation is still something that is learned by doing, but a little educational framework is viewed as harmless and possibly useful.

MU’s faculty and leadership is currently engaged in a huge and complex debate over its direction, which is taking place on two tracks. First, what materials are taught. Second, how is that teaching carried out (i.e. hierarchical or collaborative). Essentially the question is what does it mean to create a learning experience of cooperative values.

MU has an integrated circular relationship with MCC cooperatives, in a way that reminds me somewhat of how there are large clusters of businesses (especially biotech) near college campuses in the U.S. (Stanford being a fine example of this).

Looking more broadly, Freundlich said that in the 7 towns of the Alto Deba valley, 60% of employment is in the cooperatives, which make up a total of 4% of the Basque country’s GDP and 8% of its industrial output. He sees this as a tantalizing opportunity to study everything from civic participation to cardiovascular health, and to begin to answer the question of whether and how cooperatives make for a better society.

Most people have always lived in a cooperative system, and don’t see cooperatives as activist work; that is especially true of younger people, who are more likely to scratch their activist itch through social issues like Basque nationalism. There are people who want to see the cooperatives become more cooperative. Even so, Lankide is interested in working with youth to implant the idea that cooperatives are a field of activism, but this has not yet translated to an official MCC youth engagement plan.

-       Saiolan

This body, whose name means “experience work” was explained to us by Esther Trabalon, a monitor/coach of new workers. Her job is to work with entrepreneurs to create new enterprises. Despite being on the job for only 5 months, she stepped in to give us the overview.

Saiolan’s goal is employment generation. It was founded in the early 80s, when 60% of university graduates were unemployed. A group of MU professors wanted to change this, and began to build a framework that supports four elements of business development: entrepreneur, business idea, financial resources, and study/experience.

The process has five levels.

  1. Motivation and training (entrepreneur)
  2. Recognize a business opportunity (idea)
  3. Business project/prototype (research
  4. Startup/bootstrap (financial)
  5. Development and consolidation.

1-3 form the creation/pre-incubation period, lasting roughly 1 ½ years.  4-5 are the development/incubation period, lasting six months.

Work occurs along two tracks: The business study leads to a solid business plan; if the idea is not clear, Saiolan coaches help to refine it. The technical study leads to the creation of a prototype to deliver using that plan. These two plans are in constant communication, and eventually lead to a market test.

Esther was armed with a whole series of very complex diagrams, which defy narrative description. However, the gist of them seemed to be that there is a division of labor about whether development is provided by Saiolan or the innovation area, with Saiolan taking projects that are in less familiar technologies and less-developed markets.

Students come to Saiolan during their last year at MU. Saiolan uses inputs from the knowledge area of MCC (i.e. MU), entrepreneurs, and other businesses, and provides outputs for promotion within MCC (most common), other enterprises, and the competition campus.

Saiolan currently has 11 coaches working with 40-42 grant holders, and it is also providing legal financial and administrative advice. New activities peaked during the general economic golden day of 2007, with 18 projects, and has dropped to 13 in 2008. Of course, this is still above the historic average, as there were only 1-2 projects per year through the 1980s, and only 4-7 during the 1990s. In all, they’ve incubate 157 companies and 2336 jobs. Only 17 companies have closed, nine of these in under five years from launch. Esther did not know which of these were capitalist firms, but speculated that many failures could be attributed to investors sucking profit out of the operating capital.

-       A few words on that “solidarity” graffiti.

The Fagor plant in Tafalla has 401 worker members and about 208 salaried workers, who declined the opportunity to be members. The cost saving approach has been to lay off 124 salaried workers, as well as a 6.3% cut in member salaries.

-       Ikerlan, w/ Maria Eugenia Inurieta

The R&D engine of the MCC machine began in 1974. For the first eight years it only assisted cooperatives, but later opened up its services to anyone who would pay for them (a recurring theme with MCC), including both business and government clients. This stemmed from a string attached to government funding of its activities in the early 80s, at which point the cooperatives did not have sufficient capital to expand Ikerlan on their own. Conversely, MCC co-ops have no obligation to use Ikerlan services, and may seek assistance wherever they choose.

Ikerlan has a number of far-flung alliances, including the Berkeley Lab. Research lines include embedded systems, electronic controls, mechanical systems, microsystems, and mass-customization.

Ikerlan’s mission is to reinforce MCC companies’ innovation capacity and boost the Basque Country’s sustainable development. It employs 203 professional, about 84% of whom have advanced degrees, as well as 43 grant-holders. Ikerlan is a cooperative owned by 170 members.

-       Garaia Innovation Park w/ Jesus Maria Herrasti.

Mr Herrasti is the chair of the Innovation Council, and one of the elders of the Mondragon Experience. He started work with the cooperatives as a student back in the days when the founders still walked the Earth.

Innovation parks are often developed as extensions of university campuses, to provide a meeting point between science/technology and business. The location of our visit was somewhat disorienting, with Microsoft logos on the walls. It seems an incongruous place for the big-picture discussion that ensued.

At the same time, it reflected MCC’s almost obsessive interest in innovation, as Herrasti said that the system “will not survive in the next five years” if it is not able to remain a leader of innovation. In that sense, I suppose, Microsoft’s “Embedded Technologies” project is a natural bedfellow.  On the other hand, I have to wonder whether they are putting equal effort into organizational innovation, which will be at least as important as technical innovation. Tom raised an interesting point in this regard by framing cooperatives as a technology for putting human persons into something that works for them.

Herrasti acknowledged that the present is a time of great change, with unemployment at 10% and possibly headed to double that. Ironically, Garaia reflects that economic turmoil. The physical park is a new development climbing a hillside across the valley from MCC headquarters. The park is partly finished, and the building we visited was mostly vacant. The park was also home to the only abandoned factory I saw in town. This prompted me to note the visual similarities to the real estate crash in California, and ask to what extent MCC is in trouble if this project falls apart. Herrasti’s answer was intriguing: They’ve already paid for 90% of it, so while this is obviously a disappointment, it is not something that can do real damage to the system as a whole. They are working toward results in the 15-20 year timeframe.

Herrasti counts MCC’s greatest successes as greater wealth distribution in the community, and people being able to start their work lives later (after more time for education). He knows that change will continue, but doesn’t know what it will look like. However, it seems like MCC has already achieved a great economic shift, and its momentum as an economic transformation has slowed. As Herrasti puts it, “at the beginning it was a movement, but this is not the beginning.”

Mikel added that MCC’s biggest sector is domestic appliances, which is obviously a troubled line of work due to the financial and real estate crises. He suggests that some producers (including MCC co-ops) will leave this industry. One of the great challenges facing MCC seems to be management of a significant contraction during a time of great organizational shift. The changes made in response to globalization (i.e. subsidiaries, working with Microsoft) seem like a step away from cooperation among cooperatives, so there is a risk of further movement along this path of values compromise. The more MCC’s innovative edge is surrounded by Microsoft energy, the more risk there seems to be that it will lose its way and continue to diverge from its values.

October 17 – Dinner with Fred & Ana Fruendlich

Mondragon did not initially use the label “cooperatives” about the Experience. This was partly due to a lack of attachment to that particular form (which is means to an end), but also related to the Franco era, in which they wanted to keep a low profile and also avoid association with the official state “cooperatives.” We were reminded that Arizmendi started by trying to reform an existing institution (Union Cerrajera). People hated the regime and the cooperatives turned out to be a relatively safe way to express that.

During the middle period of development, MCC began to bring in managers based on their technical and business qualifications, and this contributed to a culture that is still largely bought into the classical business school management style. The system is extremely strong because of its internal networking and shared institutions, but he doesn’t see much prospect for identification with the broader co-op movement. MCC has been trying to bring worker ownership into the subsidiaries, but the financial crisis has knocked that a few notches down the list of priorities.

Basque prejudice aside, there do seem to be serious obstacles to exporting the model. Tom told of an episode in which MCC was willing to help launch a cooperative steel project in Nova Scotia, tied in with wind turbine development. Herrasti said “get 12 people together and call me” but unfortunately the project focused on getting buy-in from various agencies, and didn’t talk to the thousands of unemployed workers who would likely have been quite intrigued by the opportunity.

Freundlich is personally familiar with several co-ops that are in serious financial trouble, and he predicts that some co-ops won’t survive. However, he does not see this leading to members losing jobs. There might be more “tense” early retirements in which there is perhaps a little push given, but for the time being MCC’s perfect record of job security seems safe.

October 18 – Angel Errasti of the University of the Basque Country in Donostia

Angel grew up in the valley, and while he no longer lives here, he still considers himself a part of the community. He has an avid interest in his home’s development, which he has studied from a bit of a distance.

He provided us with a handout that described different types of businesses. He noted that MCC has penetrated the industrial sector, which had previously been unreceptive to cooperative organizing; in doing so, some of the cooperatives have shifted from being large national firms to small transnationals.

He raised an interesting and counterintuitive point about the use of subsidiaries: While we might fear that job creation overseas would result in lost opportunities for job creation at home, it seems that these are not mutually exclusive. The co-ops that have pursued a global strategy have created more jobs at home than their domestic-only counterparts, with growth rates roughly double the average.

However, we also learned that there is not much difference for those subsidiaries’ employees, compared to working for a capitalist transnational. Wages are somewhat above the local average, but are not bound by MCC starting wage.  Because managers are paid at MCC rates, the 6:1 salary ratio cap does not hold. This is a big deal, because there are now nearly 80 subsidiaries, and the overall number might hit 100 in a few years. Combined with consolidation among cooperatives, it is conceivable that MCC could reach a point where most component firms are not cooperatives. That would not look very good.

One of the major obstacles to co-op conversions of subsidiaries is turnover. He mentioned a Mexican subsidiary with a staff of 200 that has employed 6000 individuals over a decade. This is obviously not a good foundation for building worker ownership.

October 19 – Basque Co-op Confederation w/ Lorea Sodevilla

Mondragon is a force on its own, comprising about 4% of the Basque economy. But when we look at the bigger picture, co-ops are about 15% of the economy and 35% of people have some sort of relations with a co-op.

The Basque Cooperative Confederation (Konfekoop) has formed over a period of roughly two decades, with the formal creation of the body coming in 1996. Prior to that, sectoral federations were formed in six areas, beginning with consumer cooperatives (1988), followed by agriculture, banking, and worker co-ops (1989), education (1990) and hauliers (1992).  In 2006, work, education and banking merged within the confederation to yield a Konfekoop with four constituent parts.

Overall, there are a total of 721 co-ops represented. Worker co-ops are most numerous, with 555 co-ops (of which 85 are from MCC). Consumer co-ops have the largest membership, making up more than 430,000 of a total of 521,000 in the system. There are also more than a thousand cooperatives that are not in the confederation.

Konfekoop is involved in several inter-cooperative projects, as well as provision of financial services for the social economy. It’s work includes Promokoop fundazion which promotes cooperatives, Elkar-Lan (which provides help to most co-ops, including those born in Saiolan), and a cooperative think tank called Elkar-Ikertegia.

Konfekoop also works with multiple contacts in all levels of government, as well as the social economy. They are heavily involved in general promotion of the Basque country, and pursue relationships with a wide range of organizations to that end.

Basques have a reputation as superhuman cooperators, but it seems that they have a weak spot around housing. There are 225 housing co-ops, but these are not organized into a federation. They generally join Konfekoop separately, and Konfekoop is studying how this sector can be better organized. Part of the problem may be that the Basques don’t get housing co-ops, and indeed when Lorea was pressed on the subject she asked what is the purpose of a cooperative once the building is completed. Their paradigm is of cooperation through work, so once the structure is built, the cooperative loses its reason for existence and shrivels into something like a condo. This was one of the most fascinating and startling insights of the entire trip for me.

Elkar-Lan has four people on staff, and offers training, communication, monitoring, feasibility studies, and advice for incorporation. In 2008 it launched 40 cooperatives, only one of which was a conversion, and in 2009 the total spiked to 65 with two conversions.  Not all of these are worker co-ops, and often co-ops result from when a church wants to close a school but teachers want to continue.

-       MCC management model with Jose Luis Lafuente

The model is based on an inspired philosophy, including principles, culture and values. It begins with tools (methodologies and instruction) and connects them into systems with procedures. This results in a management model of directives that connect the systems with the philosophy. This management model is not just for philosophical satisfaction; it must help co-ops become more competitive.

The model began in 1996, rooted in Total Quality Management (TQM). For the first several years they developed a large number of tools. In 2002 the model was reviewed and the tools were replaced with good corporate practices, which adapted the tools to business.

The general model was reviewed in 2006, and this resulted in the current format and documents, which are an intricate, multi-layer set of sectioned concentric circles, radiating outward from the central principles, with people in cooperation. There is a core paradigm shift embodied in the model; rather than seeking people for the project, the people build and share the project as a cooperative activity. It emphasizes self management and minimal levels of hierarchy, and results in an excellent and continuously improving company with socio-entrepreneurial results.

The foundation of the model is Mondragon’s 10 principles, which are related but distinct from the ICA principles. The very core of the wheel is shared by sovereignty of labor and education. This is nested in a ring of subordinate capital, democratic organization, open admission, participatory management and wage solidarity, which describe the way the business is experienced by the people directly involved (i.e. the members). This is surrounded by another ring describing the nature of the cooperative itself: universality, inter-cooperation, and social transformation.

More specifically, management is guided by a four year plan. However, this period is not sacred. They began working on a new plan in 2007, but the turmoil of 2008 prompted them to postpone the plan by a year. This is quite reasonable, as they saw that planning was nearly impossible with the economy changing so rapidly. One year plans might ordinarily be a bit too short, but they are at lease realistic.

Their view of leadership is that anyone can do it with proper education, and that self-management is most important. The management is regularly assessed using a self-evaluation tool that has ten steps, with four separate parties and the whole organization participating in different ways over a two-week period. A rigorous series of meetings results in an attempt to reach consensus about an improvement plan.

Their good practices process has several steps. First they look at many sources and brainstorm what is possible. Then they select several options to propose. A committee of workers selects which of these are best. Then it is validated by approval from the whole organization, based on whether it is realistic, positive, applicable, and coherent with the management model. Finally, the new process is spread by the extranet, journals, and bulletins.

In 2003 a management model was released for the subsidiaries, which operate in a very different way than the core cooperatives of MCC. This model doesn’t contain the word “cooperative” but draws on many similar principles. Jose Luis believes that the model is not applied very well in the subsidiaries, and he’s not sure how it will be applied in the future.  Perhaps in five years they will present a model to convert a group of subsidiaries into cooperatives.

-       New Business Development Center w/ Joseba Erauskin

The center is part of MCC’s knowledge area, and works primarily in energy and health these days. It connects with Mondragon U and other universities, 12 R&D centers, Saiolan, Garaia, and other entities. Its mission is to create new activities to generate sustainable development (although it isn’t clear whether they mean this in the ecologically sustainable sense).

Their functions include identification of strategic sectors and generation of opportunities within those sectors. To that end, they generate business plans and provide interim management for new activities during the first 5-7 years.

Objectives include direct promotion of the health and energy fields, creation of platforms for positioning in value chains, identification of future new activities that are compatible with MCC mission and objectives, and support of co-ops and divisions in their promotional activities. Their work is a mix of technical and administration, as they both make studies and find entrepreneurs to carry out targeted activities.

Funding comes from the Industrial area of MCC, which decided to create the center at one of their monthly council meetings 2 ½ years ago. New enterprises created by the center must be part of MCC. Five percent of Industrial group profits are directed to the center (an arrangement that has caused some severe budgetary problems in these unprofitable days).

October 20 – Departure

Departing from Mondragon has been interesting. We spent one last night in Bilbao, which is even more cosmopolitan than San Sebastian. I was most struck by the near-absence of Basque on signs. Other than official street signs and such, things were pretty much Spanish. The main exception was our hotel, which had signs in Spanish, English, French, and German. We agreed that that must really smart for those who seek to preserve the Basque Country.

I’m now back in the U.S., shifting gears for a conference in Cincinnati. Before that adds a new layer of distraction on top of my Mondragon experience, I want to take a moment to share my general impressions.

It was a disillusioning trip. I don’t mean that as a criticism, and if anything, the Mondragon model seems more real and applicable than ever before. Basques are great people (except for those who aren’t) but they are just people. In one of our last workshops, we heard from the Basque Cooperative Confederation, and learned that despite their stunning success in worker-ownership, the Basques do not seem to have the hang of housing cooperatives. It seems that their concept is to maintain the cooperative structure only during construction; once that is over, they lose their purpose.

Another lost illusion is that Mondragon is some sort of utopia that cannot be reproduced. The Basques have certainly faced unusual circumstances, but I no longer have any illusion that they are somehow unique in their ability to cooperate and run ethical businesses. Mondragon may be uniquely Basque, but many of its lessons can be applied

Mondragon is also imperfect, and those imperfections must not be ignored. On the one hand, the flaws of Mondragon affirm that the Basques are not a magical people whose feats of cooperation can never be matched.

On the other hand, if we paint a picture of Mondragon as utopia, sooner or later we’ll find that it is not. More importantly, the world will find that it is not, and may be tempted to dismiss us as the latest batch of idealists willing to overlook the very real flaws of our idols.

2 Responses to Notes from Mondragon

  1. yochai says:

    Wow. Can I just say wow. I have been mentally planning a trip to the Basque region for years — with the express purpose of learning how co-ops work for them. Your notes have been most impressive, sobering, hopeful, and very detailed. I don’t think I ever could have let my illusions down long enough to perceive as much as you have.
    Thanks so much for this, and keep it up! Your notes are a gift.

  2. Pingback: The Growth of Citizen Co-Ops Is a Positive Development As Corporations Fail Us in Every Way - Go Green - SustainLane

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