07 April, 2016

Distributism and Large-Scale Industry

Thomas Storck's recent article about the antagonistic relationship between owners and workers prevalent in capitalist enterprises included the following statement. "The activity of the Mondragon cooperatives in Spain proves that there is no reason why large-scale and highly technical industrial operations cannot be worker owned." This sentence prompted a reader to respond with a request.
"Please provide a follow up article showing how this system works for Mondragon, their profit, employee take home, growth, etc..."
This response to that request will address two things. I will first provide the information requested, then I will address the case of Mondragon and how it does, and does not, relate to distributism.

Mondragon started as a technical college, founded by Father José María Arizmendiarrieta in 1943. Its first cooperative was established with 5 workers making paraffin heaters in 1955. Today, Mondragon is a cooperative federation comprised of over 250 companies and 74,000 workers operating in the finance, industrial, retail and knowledge sectors. Mondragon's sales in 2014 were €10,985 million (US $12.48 billion). They put €145 million (US $164 million)  in research and invested €345 million (US $392 million). They have 15 technology centers, 1,676 researchers and have filed 479 patent families.

I don't have specific information on employee take-home, but each company agrees to set its own wage ratio within an agreed upon range of 3:1 to 9:1. The average is 5:1, meaning that the highest paid person in a given company typically makes no more than five times what the lowest paid person in the same company does. The result of this is that the workers doing non-management jobs at Mondragon typically make 13% more than similar local jobs outside of its structure. Most workers make well above the minimum wage since they are employed in jobs requiring high levels of skill and technical training, Mondragon's managers do earn less than those outside of its structure, but this is because they agree that Mondragon's model is better than the typical corporate model.

Only 103 of Mondragon's 260 companies are cooperatives. This in itself does not make it incompatible with distributism. I don't have any details about the other 157 companies, like whether they are small, independently owned businesses. The ideal of distributism is that everyone own the capital used to earn his living, but we accept that this ideal may never be fully achieved. Some people may just prefer prefer to be employees, or may have to work as employees for some time before they can become owners. Distributism does not require that every shop be a worker owned cooperative, but those that are not would tend to be small local shops, and I don't know the extent to which this is the case for those Mondragon companies that are not cooperatives.

The original cooperative established with five members back in 1955 grew to become Fagor Electrodomestics, the largest company in Mondragon's federation. The Fagor brand is currently present in 100 countries, employs more than 12,000 people in 17 countries and operates 16 factories in 3 continents. Due to mismanagement, it had to declare bankruptcy in October 2013. The economic articles from capitalist pundits seemed to hardly contain their glee at what they perceived as the fall of the greatest example that methods other than their own could work. The Economist declared that "one of the group’s key principles—of solidarity among its 110 constituent co-ops—has found its limit." Actually, what had reached its limit was the federation's willingness to extend another loan to prop up Fagor when it had no plans which would resolve its problems.

Before crowing so loudly, capitalist economists should have waited to see the reality of this commitment and how it compares to what happens when the typical capitalist enterprise goes bankrupt. The reality of Mondragon's commitment to worker solidarity is revealed by what the federation actually did regarding the workers of Fagor. Mondragon’s social mutual, Lagun Aro, proposed a 1.5% raise in contributions from all members at the next General Assembly so it could provide needed unemployment benefits to displaced Fagor worker-owners. They received 80 percent of their salary while Mondragon identified new positions for these workers. Compare this to the layoffs we've all seen reported when large capitalist employers go bankrupt or have to restructure to avoid bankruptcy.

This clearly shows the dynamic vibrancy and resilience of the cooperative model even when operating with large-scale, multi-national, highly technical industrial operations. This is why various cooperative organizations, the p2p economic movement and distributists all can validly point to Mondragon as an example of how well the cooperative model truly works.

When it comes to distributism, however, my opinion is that we need to be more carefully nuanced when using Mondragon as an example. It has grown to a size and scale of operation beyond that which distributists actually promote and which goes against the preference for local or even regional economics to the international model touted today. We are not in any way against international trade, but individual corporations employing thousands in multiple countries seems to me to go against our economic model, and Fagor is an example of why. The description of how Mondragon handled the bankruptcy of Fagor should not be taken as a claim that it wasn't an issue for the federation. The mismanagement of Fagor not only impacted its thousands of employees, but the entire Mondragon organization. The fact that it was able to come up with a solution that maintained its commitment to worker solidarity does not mean that this was an easy solution or that it did not put significant strain on the people or the finances of Mondragon as a whole.

In the past, Fagor might have been held by some to be the shining example of Mondragon's success because it was the largest company with the most employees, but that is looking at the organization from a strictly capitalist perspective. What happened in the wake of Fagor's bankruptcy shows that the many smaller cooperatives and the overall commitment to worker solidarity are the mark of Mondragon's success. They helped to support Fagor with the loans it received before the final straw that resulted in its bankruptcy. They supported the workers displaced when Fagor failed. Democratically based worker solidarity is at the very heart of the cooperative movement, and also at the very heart of the guild structure distributists promote.

It is clear that the cooperative model works and this is why distributists propose this model for large scale operations, particularly those which only make sense at a more regional rather than local level. Of course, cooperatives also work at a local level and we promote that as well. 

I hope this article fulfills the request of our reader.

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