MONDRAGON: THE MODEL FOR WORKER-OWNERSHIP

After working to support myself for some 24 years, in 1980 I left my position as a mental health director and began my doctoral studies at the University of California, Berkeley. One of the areas that I decided to examine was administration and why it was so uncommon for workers to find hospitable organizations in which to spend one of the largest and most significant parts of their lives toiling. By that time in my life I had become an administrator in large part as a defense mechanism against the vagaries and tensions that are frequently the result of working in organizations that are designed, or so it seems, to cause cancer and heart attacks for their workers.

What I discovered after considerable doctoral research was that, with few, some might argue with no exceptions, the literature in the areas of administration and organizational theory is largely adaptive---how do you minimize the pressures that organizations create so that you can maximize the productivity of workers. The literature did not speak to how you might eliminate the pressures and tensions. By the 1980s it was already clear that the socialist alternative, where the means of production are controlled by the state, was no more feasible as an alternative to capitalism than were other utopian forms of worker-employer relationships. Honest surveyors of the work environment acknowledged how damaging those environments can be, but, no one was presenting an alternative.

Since Berkeley has one of the great university library systems, I was getting discouraged when I finally found that a handful of British professors were studying what they considered to be an outstanding alternative which they called the Mondragon Experiment (Bradley & Gelb, 1981, 1982, & 1983; Campbell & Foster, 1974, Oakeshott, 1978). When I tried to incorporate this literature into my social welfare studies, my Berkeley professors were less than supportive. They knew nothing about the Mondragon system and felt that I was getting too far afield into an area with almost no literature to explore. Since then, it is interesting to note that some students have not only studied the Mondragon system but also made it the focus of their doctoral dissertation (Ornelas, 1980; Gutierrez-Johnson, 1982; Clamp, 1986). The key initial researchers of Mondragon were primarily economists from the London School of Economics and they were not really focused on the bio-psycho-social impact that the Mondragon Experiment was having on the workers. However, since their studies revealed the system to be highly profitable, I wanted to know more about it and wrote a grant and in 1984 went to Spain to study the Mondragon system.

What was fascinating to me in my research effort was discovering how thoroughly they had thought and worked through every imaginable problem in their effort to create a work environment that was truly worker centered (Clutterbuck, 1974; Gutierrez-Johnson & White, 1977; Goyder, 1979). But, first, let me provide you with some basics.

The Mondragon Experiment, as it was labeled by outsiders who came to study it, is centered in Mondragon, Spain, in the heart of the Basque region. Actually, the Basque people would prefer that it be called the Arrasate Experiment because the name of Mondragon was imposed upon them by the Spanish and the ancient town of Mondragon was originally known as Arrasate. Although this may seem an insignificant footnote, it really is at the heart of what this "experiment" is all about. The roots of the system go back to the period of oppression of the Basque people by the dictatorship ruled by Franco for decades after his victory over the democratically elected government in the Spanish Civil War. Since the Basque people sided with the government and fought against Franco's forces, he did his best to oppress them after his victory. In 1943 Father Jose Maria Arrizmendi-Arreta established a technical school in the Basque town of Mondragon to try to ameliorate the social and economic ravages of the war. By 1956, graduates of his technical school, which also taught the ideals of solidarity, started the first production cooperative with 23 workers. They were highly successful and so in 1958 when they needed capital to expand, Father Jose warned them against going to the banks for funding. He had read how the early English cooperative movement was destroyed in large measure when they went outside their system for financial support. But, what alternative was there? Should they stay small and not grow? Father Jose guided them toward another alternative---he encouraged them to start their own bank. Without exception, the workers felt he was crazy, that they could never successfully create a banking system. But, they tried, and they succeeded beyond their wildest imagination and developed one of the largest and most successful banking systems in Spain.

By 1984 when I arrived to study them, from these humble beginnings over a 28 year period had evolved a cooperative system with 132 linked cooperatives, with 18,199 worker-owners, with their own banking system (the second largest bank in the Basque region of Spain), a technical and a business school, a research and development institute, and their own social security/health and welfare system. In addition to the basically industrial cooperatives that are the driving force of the system, they have created large-scale housing and grocery store cooperatives in response to the way they felt existing systems were gouging them.

Their workers were, without exception, owners. If you did not have the funds to buy a share of the system when you first joined, then the bank would loan you the needed funds at very reasonable rates that you could then easily afford to pay back through the competitive salary you received for the position you held. Also, at the end of your term of service, you were required to sell your share at market rates back to the system so that no one outside the system, not even retirees, could hold any financial stake in the system. Those that do retire, not only receive a substantial retirement benefit, they also get this large cash benefit from their holdings in the system.

A worker-owner does not fear being fired. If the unit they are working in, for any reason, such as automation, no longer needs their services, they either are offered a comparable position at another unit or return to school to learn new skills so that their services will continue to be needed. Mind you, in any transfer they continue to receive the same or comparable compensation. For example, if they are offered a new position at another unit and that position does not pay as much as they are currently earning, then the Mondragon's Insurance System pays the difference. If they have to travel farther to get to the new position, then the Insurance System compensates them accordingly. In short, since the workers are the owners, they have thought through what it takes to ensure that workers are treated fairly. They do this because they know that some day they might be in a similar position, however, they also act in this fashion because they understand that, when you treat workers justly, they respond with increased quality and quantity in the work that they do. The greatest proof of this is that economists who have studied the Mondragon Experiment found it to be 30% more productive than comparable capitalist organizations.

However, that 30% is not created simply by harder work, not by a long shot. It is also achieved because they no longer require the layers of supervision and tons of control mechanisms that typical capitalist systems impose at considerable cost. They also find that the entire work force is on the same page, everyone wants the system to work efficiently because everyone benefits financially when that happens. And, at the heart of the cooperative effort is the realization that if you are going to have any organization minimize tensions between lower level workers and administrators, you have to avoid glaring disparities in incomes. The Mondragon system imposed on itself a 1 to 3 ratio between the wages paid the lowest workers and the wages paid the highest workers---the administrators.

What tends to happen when you create an egalitarian work environment is that you get all types of indirect and extremely valuable benefits. Yes, worker-owners take great pride in the work they do and this ensures higher quality and greater quantity. However, the workers are also happier, less prone to illness, and thus costs are reduced and lives are enriched. The one to three ratio means that a janitor might very well belong to the same social club as the "bosses" and communication is exponentially enhanced. If something isn't working well, be it as simple as the quality of the broom the janitor is provided to do their job, the managers hear about it quickly and informally. Since those managers are well aware that even the janitor has a vote on who remains a manager, they respond appropriately and without unnecessary delay to all of the legitimate concerns of the worker-owners.

Leadership is necessary in any system. The typical capitalist system believes that leaders have unique skills and should be highly rewarded. In the Mondragon system, this myth has been effectively exploded. First, administrators are responsible to the worker-owners and are sacked if they do not function effectively. Secondly, the administrators are provided guidance by democratically elected councils of worker-owners. One of my concerns when I was studying them was whether or not such councils were really effective. In most capitalist organizations and most public organizations there are boards with considerable authority. However, they tend to be dependent upon the leadership for their appointment and information. They rarely have or are able to exercise independent powers. How, I wondered, did the Mondragon system ensure that their councils were effective. It wasn't sufficient for them to be democratically elected, even though this was a considerable improvement over what normally transpires. To ensure their effectiveness, the members of the council are sent to school to study how an organization functions, to understand how to read a balance sheet to make sure that they can understand well enough what the organization is doing so that they could effectively represent the worker-owners.

In short, everything that could undermine the system was resolved with critical thinking processes that always were focusing on how to build both a highly productive and a caring environment because the worker-owners knew that they would benefit from such a balanced system.

In 1984, after returning from my research project in Spain, I began teaching my students and guest lecturing about the Mondragon system. Although students were uniformly envious of such a system and desirous of working in a Mondragon style system, for the most part they were highly skeptical about their chances of ever doing so. This was in large measure due to the socialization they had received where they had a hard time seeing themselves as worker-owners. Workers, yes. For some, they had no trouble seeing themselves as owners, however, those that did tended to see the advantages of being owners who exploited the workers---the greedy tend to see only the advantages to themselves of ownership. However, as time passed, students began to see the Mondragon system as less utopian and more pragmatic. This change, though slow and still transpiring, has been brought about primarily due to the growth of worker-owned organizations here in the United States---especially ones that are highly visible due to their advertising on television (Kirkpatrick, 1988; Dallow, 1990; Williams & Schachter, 1990; Castro, 1994). Now it is common for students to see advertisements telling them they should fly a particular airline or drive a certain rental car because the employees are owners and will serve them better because of that special relationship.

What will also ultimately find its way into the media is the failure of some of the worker-ownership systems that are being developed. The Mondragon system has been highly successful because it was built from the ground up, whereas many of the emerging worker-ownerships that we are seeing are being built on existing and often sick industrial organizations. Also, no worker-owner system is as complete as the Mondragon one so that the others are more likely to have to borrow money from regular banks and take steps that will undermine their potential over the long haul. The thoroughly integrated Mondragon system creates a synergy that helps to ensure its long-term success. When developing any worker-owner system, every effort should be made to emulate all of the elements of the Mondragon system.

It is also important to acknowledge that the existing capitalist system tends to take actions to protect the status quo. The Mondragon system was successful in growing under an oppressive capitalistic dictatorship because it avoided direct challenges. Chile's President Allende, who sent representatives to study the Mondragon system, was deemed too dangerous and assassinated. How you go about creating change is often as important as the change you are trying to develop.

What I have taught through the years is that, modern industrial society has dichotomized the conceptual alternatives as to how we might organize our systems into socialist/communist and capitalist systems. These two alternatives are at the extreme ends of a continuum of alternatives and they have been inexorably, but, very slowly, in fits and starts, moving away from the ends toward the middle. That balanced middle ground toward which they are moving is best exemplified by the Mondragon system. In short, if you want to know what the new form of organization for the next millennium will look like, you need only examine the Mondragon system. This reality is slowly finding its way into the literature (Thomas & Logan, 1982; Schwartz, 1984; Azurmendi, 1984; Bradley & Gelb, 1985; Case, 1986; Kaswan & Kaswan, 1986; Whyte & Whyte, 1988; Morrison, 1991). One of the ways I judge if an author is aware of more than the dichotomous alternatives is to see if they are aware of the Mondragon system. Although few are, those aware that the basic two systems don't work and recognize that we must seek a better road to travel, tend to at least mention the Mondragon and other worker-owner systems (Lappe, 1989; Abell, 1988; Cornforth et al, 1988; Hacker, 1989; Hesselbein et al, 1997; Thornley, 1981; Jackall & Levin, 1984; Case, 1986).

An old and accurate axiom is that you cannot have political democracy without comparable economic democracy. Money drives the political system. Those who believe that the human nature thirsts for equality, freedom, and justice not only value the Mondragon model for what it can accomplish economically, but, also highly value its political influence and the positive bio-psycho-social results of a just society. It is my desire that the reader takes away from this presentation an appreciation for how realities both change and remain the same over time. The Mondragon system started out very modestly and has grown dramatically over the past four decades. In one lifetime the founders of the Mondragon system have seen a mighty system grow out of a modest acorn-style planting of ideas by Father Jose. Each of us should think about how much we can accomplish in our lifetime, not just in the next few years, if we dedicate ourselves to principles of solidarity.