Guest blog by David and Lila Tresemer, September 2012 (www.MountainSeas.com.au and http://www.DavidandLilaTresemer.com)
A 600-person committee oversees the entirety of the 120 cooperatives. If business is failing in one sector of their businesses, instead of laying off workers from those cooperatives, they strive to find employment for those workers in cooperatives in other sectors that are doing all right. The entire 100,000-person workforce is looking after itself by ensuring employment for everyone. Imagine those meetings of 600 people trying to manage their 100,000 members effectively. Prior to the Global Financial Crisis and its second wave that is now very hard on Spain, it was much easier. Since 2008 and especially in recent years, it has been very challenging. Yet they’ve succeeded, and their unemployment is 0% whereas Spain’s is 40%+.
Here are some of the details. Of a company’s profits (gross income minus cost of materials of production, cost of labor, cost of overhead, and taxes), 10% goes to an Education Fund, 45% goes to a Reserve Fund (replacement and upgrade of buildings and equipment), and 45% goes to the workers. That last 45% doesn’t go directly to workers but to a Capitalization Fund (basically a large pool of money that the company then invests) that is held in trust by the company. The company pays the worker 7.5% annual interest on the worker’s accumulated share of the Capitalization Fund. When the worker retires or leaves, the worker’s share of the Capitalization Fund is paid out completely to the worker.
So how do you become a member of a cooperative? It takes three years’ probation, an investment entry fee of 15,000 Euros (as of today about $20,000 US), and an approval vote of all your coworkers. Once you’re in, you’re part of the system of cooperatives and are ensured employment until you retire. You can be voted out but that is very rare.
To realize this system, they had to create their own bank. You can go to a bank as a group of equal-worker-owners, and pull together collateral from everyone to satisfy the bank that it can risk loaning you money to buy equipment to realize your idea. But it’s easier if the bank was begun by the Mondragon system, as they understand more readily. The bank gives a special interest rate to cooperatives.
Furthermore, they have developed some amazing support systems for their efforts:
- Finance – that bank, Caja Laboral, is the second largest bank in Spain
- Education. They started a university (see below the story of how it began), and this gives them a steady stream of trained workers and inventors/designers, as well as research facilities for some of their inventions
- R & D – Research and Development. Some cooperatives are dedicated to R & D. Companies on average pay more than the usual for R & D – typical for industry being 5%, and Mondragon’s average 9%.
- Social Welfare. They have a very good pension plan and health care plan. The latter includes preventive health care, meaning attention to nutrition and exercise – so there is a nod in the direction that we were hoping to see, though not at the level we had hoped. In this should be put the social welfare of others, as there are various projects of technical assistance to other countries that the cooperatives fund. They are aware of the studies that show that trust is good for your health. Inequity and distrust are bad for your health.
Now for some observations so far. The cooperative system can be looked at as a means to preserve worker power in a region where the workers were severely repressed in the Franco years. Now they have fought back with a comprehensive system that supports their community. You have to see Mondragon from this point of view. It is a mountainous area where the valleys are filled with six-story apartment buildings that house the Basques, speaking their unusual language whose origins are not understood. This can be viewed as a mechanism to protect a community, in this case, several beautiful valleys linked by a common cultural heritage. Inside the system, it looks like a great invention to support the community. Outside the system, it looks like another set of companies who are competing in the global marketplace – against the low wages of Chinese workers, against the government subsidies here and there, against rip-offs and copiers of R&D’s good ideas, etc. The Mondragon cooperatives sub-contract to other companies that exploit their workers (low pay, no benefits, the throw-away-worker mentality) in China and South America. Thus from the outside they appear to play the capitalist game, which the apologists view as necessary to keep that cash flow from outside to inside, into the cooperative system.
More story in Part III.