February 17, 2011

Egalitarian economy: The Mondragon Coop

The Mondragon Corporacion is the world’s biggest co-op with 85,000 'worker-owners’, though the Basque group is better known for products such as Orbea bikes that won gold at the Beijing Olympics and sell for up to £11,000, or Fagur fridges, Brandt ovens, Eroski shops, or the coming electric City Car.
Top brass in Mondragon’s mountain lair may not earn more than six times the lowliest cleaner. "In reality it is just three times after tax.The differential in big Western companies can be 400 times, and is getting worse.
The solidarity ethos has its allure given mounting research by the IMF and other bodies that the extreme gap between rich and poor was a key cause of the global asset bubble and financial crisis, as well as being highly corrosive for democracies. The GINI index of income inequality has reached levels not seen since the 1920s across the West. 
Mondragon weathered the 2009 slump in machine tools, car components, and its other cyclical niches by putting 20pc of full staff leave for a year at 80pc pay, with names chosen by lottery. Some of its 256 co-ops froze pay, others took a 10pc cut. 
The membership rule is that all new workers must put up €13,400 in share capital, which they can borrow from the group’s Caja Laboral, one of the few Spanish savings banks in robust health.
Profits are largely reinvested or sunk into research centres, though a chunk is spent on social projects. Worker dividends are paid into retirement accounts. The whole system is run by an elected Congress, known as "the supreme expression of sovereignty". 
Such an egalitarian venture creates all kinds of problems. "We can’t offshore, so we have to keep climbing the technology ladder and improve core engineering here," said Mr Ugarte.
If a co-op keeps losing money, it is given three years to come up a credible plan, but ultimately workers have to be retrained and found other work. Paid-up 'Co-operativitistas' cannot easily be fired.
It generates 3pc of Spain's industrial output of the Basque region and generates annual sales of €24bn. Almost 60pc of its heavy production is exported.
As chairman Jose Maria Aldecoa puts it, with a Churchillian twist: "the co-operative model is absolutely flawed, but it has shown itself the least flawed in a crisis of values and models".

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