04 November, 2013

Another Look at Mondragón

From time to time, some of our readers have suggested that we should not use the Spanish cooperative corporation, Mondragón, as an example of distributist principles in action. The main point of this suggestion is that Mondragón has grown too big to truly be an example of distributism in the world today. I have always agreed with this point, and have responded that it would not be so big in a truly distributist society. However, because of the principles that guide their business operations, I have always felt that it does serve as an example of how distributism can work with larger scale industrial types of businesses. With the news of Mondragón's largest cooperative, Fagor, filing for bankruptcy, it is time to discuss a harsh reality with our readers.

This reality is not about a failure of distributism, or of Mondragón, or of capitalism. It is one that we all know, and would readily acknowledge, but which we haven't truly discussed up to now. Businesses fail. This is a harsh reality of economic life regardless of the economic system in place. The question that this reality forces us to face is how these failures are handled within economic systems and communities. Because we have used Mondragón's successes as a positive example of economic principles compatible with distributism, we would be hypocrites if we ignored its failures.

To start this conversation, it needs to be reiterated that, while the majority of the operating principles of Mondragón are compatible with distributism, it is not a truly distributist operation. This may be obvious to our regular readers, but it needs saying for the benefit of any newcomers or non-distributists who are reading this. The fact is that the foundational operating principles, those which set it far apart from capitalist organizations of comparable size, shows that distributist principles are not fantasy, that they can really work as an economic model. It clearly shows that distributism is not incompatible with large scale industrial production, but the example cannot be said to be a perfect one. This can be said for the many businesses that operate on principles compatible with distributism. There are small community oriented businesses that run in ways compatible with distributism in many places, but they are working and struggling to survive in a capitalist economic environment. In order for them to survive, they must also incorporate capitalist elements into their business models. Truthfully, for many of these businesses, they would not have any problem with acknowledging this; they are not distributists and the overwhelming majority have probably never heard of distributism.

The reason I say we should still use Mondragón as an example of distributist principles in action is how it is handling the bankruptcy of Fagor. Mondragón is the umbrella administration of the cooperatives that make up its economic structure. Fagor is one of many member cooperatives; it is also one of the largest. Mondragón has built up many services to support its member cooperatives, including training schools, retirement programs, and even its own bank to provide loans to its members. Fagor tried to get a loan from Mondragón to stave off the bankruptcy, but the request was denied because it was not financially feasible to loan a company with steadily decreasing sales nearly 200 million euros when there was no evidence that the loan would do anything other than delay the inevitable. There was just no evidence that an injection of 200 million euros now would eventually enable Fagor to pay of its current overall debt of 800 million ($1.1 billion).

Here's where the difference between Mondragón and the typical capitalist entity comes to light. Yes, businesses fail in any economic model, but what happens to the people in those businesses as a result of those failures? Mondragón will do what it has always done in these situations. It will help its members get relocated to other businesses within its organization. This case may be the most challenging because of the large number of people in Fagor, but the other cooperatives will do this because it is part of how they conduct business. It is likely that Fagor had taken in displaced members from other cooperatives in the past. Some of the past businesses that had failed were eventually able to re-establish themselves. Due to its current size, it may be likely that, if Fagor restarts in the future, it will not be quite as large.

We can also hope that Mondragón can use this case as a learning experience. Maybe it will start rethinking the size of its cooperatives. From a distributist perspective, it would have been better for there to have been a number of cooperatives producing products similar to Fagor rather than it being its own multi-national company with 13 factories in 5 countries that had built up a debt of 800 million euros. Maybe it will rethink the exceptions to its general rule of pay difference within a cooperative, where it allowed its larger companies to have up to a 9:1 difference in pay between the highest and lowest paid workers instead of its standard 5:1. This restriction is not arbitrarily imposed, it is democratically agreed upon by its members.

In conclusion, the failure of Fagor does not mean that distributists can no longer use Mondragón as an example of distributist principles in action. Fagor's problems stem from an overwhelming interest bearing debt built up in the face of declining sales. It probably should have faced reality and restructured long ago. Would the story be different if, instead of one large multi-national producer, there had been several producers in each of the countries, each one operating according to its own market demands? We'll never truly know, but I think so. Regardless, we need to remember that while we are trying to convince people that there is a better economic model than either capitalism or socialism, no economic system is so perfect that all businesses are protected from failure. The difference is the economic impact of a failure, how many people will lose their jobs, how dependent are other businesses on the continued operation of this one business, how well can the community regroup to do without that business? No, Fagor's bankruptcy is not a reason for our capitalist critics to feel triumphant, not when the prospect of a company like Boeing or Microsoft simply relocating its headquarters, or moving a substantial source of its operation to a new area not only causes panic in their local communities, but even triggers the involvement of state governments to come up with special deals (not available to smaller companies) to keep them right where they are.

Mondragón's method of operation contains many elements that are completely compatible with distributism, and the bankruptcy of Fagor is no reason to stop using Mondragón as an example – provided we remember that it is not fully distributist. We'll have to see how Mondragón handles the failure of such a large cooperative within its organization, but even though Mondragón is not a perfect example of a distributist business, it proves that distributist principles of business are not incompatible with larger industrial type manufacturing. What we should do, however, as distributists, is also focus more on the smaller organizations which operate with principles compatible with distributism. If we are ever to establish a modern distributist society, certain businesses would necessarily be larger entities than the local shop. We have said before that it isn't feasible or realistic to expect businesses like the manufacture of cars, planes, and appliances to be located in every city or even every county. This is no new admission. Belloc and Chesterton said this in the 1920s.

Distributism needs to incorporate both large and small businesses. Distributist principles are compatible with both, but large multi-national businesses made up of thousands of workers are not compatible with Distributism. It would be better to have more companies producing the same product than have one that grows and grows until it becomes so big that the prospect of its failure would be an economic catastrophe for communities. If distributist principles are fully adopted, the result would be a more adaptable and resilient economic structure because the wide spread ownership of productive property coexisting even when offering the same good or service means that the failure of one business need not mean the devastation of several, or even one community.

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