By any conventional yardstick, Mondragon is a colossal conglomerate: Mondragon’s “…collection of co-ops employs around eighty thousand people, and seventy-six per cent of those who work in manufacturing co-ops are owners. One makes bicycles at an industrial scale; others make elevators or produce huge industrial machines used in the production of jet engines, rockets, and wind turbines. Mondragon’s businesses include schools, a large grocery chain, a catering company, fourteen technology R. & D. centers, and a McKinsey-like consulting firm. In 2021, the network brought in more than eleven billion euros in revenue. The collective enforces five hundred and five types of patents and employs about twenty-four hundred full-time researchers. It also owns subsidiaries in countries including China, Germany, and Mexico, and competes effectively in international markets, winning contracts from firms such as General Electric and Blue Origin. The odds are good that key elements of something within a hundred feet of you—an espresso maker, a gas grill, a car—were made at Mondragon.”
And yet, Mondragon is not a conventional company – it’s a worker owned co-operative institution where decisions are taken very differently to what happens in a conventional firm: “The Mondragon Corporation, as it’s known, is a voluntary association of ninety-five autonomous coöperatives that differs radically from a conventional company. Each co-op’s highest-paid executive makes at most six times the salary of its lowest-paid employee. There are no outside shareholders; instead, after a temporary contract, new workers who have proved themselves may become member-owners of their co-ops. A managing director acts as a kind of C.E.O. within each co-op, but the members themselves vote on many vital decisions about strategy, salaries, and policy, and the votes of all members, whether they are senior management or blue-collar, count equally.
When individual coöperatives do well, their members share in the profits. When times are hard, the coöperatives collectively support one another, sharing funds and reallocating workers among themselves to preserve jobs. During the pandemic, workers at many Mondragon co-ops voted to temporarily reduce their own salaries or hours until markets recovered; people who felt sick were trusted and encouraged to stay home.”
Given the bad rep that co-operatives enjoy (for low productivity, excessive staffing and associations with the left, etc), it is worth reading this New Yorker story to understand why none of these negatives hold true for Mondragon, a company which has built a track record for overcoming formidable obstacles: “It’s easy to assume that such arrangements must impair productivity. But multiple academic studies have found that coöperatives with worker governance and ownership are as profitable as or more profitable than ordinary firms. Researchers note that, in co-ops, incentives are better aligned: people benefit directly when their co-op succeeds, and so they are more committed. (The same principle motivates work at many startups.) They also find that democratic governance empowers workers to suggest improvements and increases their satisfaction. Certainly, many people seem to stay at Mondragon because they enjoy working there….”
The facilities which Mondragon’s employees enjoy outside work would make an investment banker envious: “Much of the social life in the town of Mondragón happens in culinary clubs—hybrids between clubs and restaurants that are managed coöperatively, with logistics handled by rotating committees. New members can join a culinary club only after their applications have been approved in a vote; membership fees are around twenty euros a month. If you belong to a culinary club, you simply reserve the facilities, show up with friends and food, and enjoy full use of a fancy, well-stocked professional kitchen and bar. Members are trusted to record whatever they use, and accounts are settled monthly.”
But not everything is picture perfect in paradise. The author outlines some of the structural issues Mondragon faces in sustaining the co-op ethic in a capitalist work. Here is an example: “Ormaetxea described a recent controversy within the Fagor Group of coöperatives. Engineers and managers had proposed raises for themselves that would help bring their salaries closer to market rates; the salaries would not exceed the six-to-one ratio, but would be near the top end of the range, creating a larger internal pay gap. Upset by this proposal, some workers near the bottom of the pay scale at Fagor Industrial, one of the group’s co-ops, convened an extraordinary general assembly, at which members discussed and voted on the proposal. In the end, it passed by a wide margin.
“If we’re going to compete, it will go up,” Ormaetxea predicted of the six-to-one ratio. “I don’t know when and I don’t know how much, but it will.” Mondragon’s salary-ratio cap, he continued, reminded him of a popular Basque soccer club, Athletic Bilbao, which plays in Spain’s top division and uses a “local origin” rule, only hiring players born or trained in the Basque country—a noble bit of idealism that, some say, limits the club’s ability to compete at the highest level.”
The people who built Mondragon believe that the American model of capitalism is unsustainable – both at the level of the company and at the level of country. Given how much success Mondragon has had, it is worth reading the piece in the New Yorker in full to understand if there is an alternative way to build large, world class businesses.
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