Mondragon 2: Getting down to business

On the first day of our formal education, we went right to the middle of things…in more ways than one.

I’ve known that this trip is going to reveal a system that is more complex and less perfect than the myth of Mondragon. I know that they are doing things that I don’t agree with, and am sure that I’ll learn about more. But I’m impressed by how frank they’ve been so far. Our first day included two presentations that plunged deeply into these controversies, and raised difficult issues about how a cooperative economy can be developed. Therefore, this post might not be the best sales pitch for MCC other than praise for their admirable transparency and honesty.

We started at the headquarters of the Mondragon Cooperative Corporation (MCC). It is clearly a corporate campus, with nearly a dozen large buildings housing the major central institutions of the cooperative system: the bank (Caja Laboral), social services, research and development, the polytechnic school campus, and a student cooperative.  It overlooks part of the city of 22,000, which is located in the middle of a mountain range and frankly not a great place to put a bunch of factories.

After a round of introductions, our host Mikel Lezamiz brought us into a small theater where we watched a 15 minute movie. It was slick and a little bit too loud, with pulsating background music and a soothing accented narrator telling the history and successes of the system. It felt like a PR piece for GE Capital, but it was all about worker-owned and democratic cooperatives. It was an overwhelming blur.

MCC has built and designed bridges and high-rises all over the world, 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 video went on and on and on, outlining the products offered and tallying up the billions of Euros generated by each division. If nothing else, MCC is a tremendously successful business, creating 100,000 jobs in a formerly depressed region.

MCC is made up of roughly 150 separate cooperatives, divided into four main areas: industry, finance, retail, and knowledge. Industry is further divided into groups around consumer goods, capital goods, business services, construction and so on. They do just about everything, really.

It is a very complex system, and I want to acknowledge that I’ve been studying this for a while and I might skip important background information. I’ll try to explain things, but I encourage readers to post questions if something isn’t clear. And for a general background, please take a look at this publication.

Now, about those controversies…

To address competition in the globalizing economy, MCC has resorted to opening subsidiaries throughout the world, effectively becoming a multinational corporation with an ethnocentric cooperative core. After the movie, we were joined by the director of their international operations for the Americas, who was fairly candid about this controversial element. The international firms are not cooperatives, although MCC is very scrupulous with these firms and would cut off relations if they were found to be abusing their workers.

They have roughly 14,000 international employees; this is a sizable portion of the overall workforce, and a major source of cash flow that provides essential support to the system’s cooperative core. The main controversy is that MCC does not seem to have much interest in converting these firms into cooperatives.

On the other hand, I was surprised to learn that MCC has 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.

Later that day, we visited the headquarters of Eroski – Basque for “group buying” – a retail behemoth with nationwide distribution (and beyond!) and a 13-14 percent national market share in grocery and household items.  This is MCC’s largest, most complex, and fastest-growing cooperative; last year it spent 1.3 billion Euros to buy a major competitor. This added 15,000 employees in one fell swoop, and many of them are becoming MCC owners as a result. It reminds me of a python that ate a zebra.

Eroski is internally complex even from a simple operations standpoint. It operates everything from tiny corner stores up to massive hypermarkets, as well as gas stations, travel agencies, and stores selling perfume or sporting goods. They now have roughly 2400 separate locations, employing 42,000 people. Of these workers, 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 for the construction) and then rents out the other spaces. It is simply enormous.

Eroski is also dabbling in consumer ownership, offering memberships for the strange price of 1.20 Euros. These consumer members can elect their peers to half of the seats on Eroski’s governing council (equivalent to a board of directors), and can give input through other channels. Even so, I found Eroski not to be a particularly strong or impressive form of consumer ownership.

Afterward, we made a quick stop to shop and see Eroski for ourselves. There were dozens of checkstands, and we weren’t even in one of their biggest stores (which have up to 60 lanes). As much as I hate to make this comparison, Eroski is a sort of cooperative Spanish Walmart. I’m not comparing their overall business models, and Eroski’s treatment of workers is the polar opposite of Walmart (whose employees’ pay is so low they sometimes qualify for welfare). But from the retail floor, it looked like a giant discount store.

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 of high quality and weren’t produced ethically or sustainably. It seems that Eroski’s main focus for its house brand is price.

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 giving consumers some amazing prices. 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.

I’m willing to cut them a break, but I’m not willing to leave it at that. MCC is a work in progress 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.

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