What Happens to Successful Cooperatives in Capitalist
By Holm-Detlev Köhler
Some notes on recent trends in the Basque Mondragón Cooperative Corporation (MCC)
For a long time, the Mondragón group in the Basque region in northern Spain has represented the most striking and interesting example of a successful cooperative movement in advanced capitalist countries. The strong position and performance of the corporation guarantees that this will continue. Recent changes in global capitalism prove again the capacity of the Mondragón group to adapt to new market and technological challenges without losing its cooperative character. The present article discusses some of these challenges in the light of the pressure on democratic cooperative principles.
The development over the last decade of the Mondragón Cooperative Corporation (MCC), a holding company for the companies belonging to the group, may be summed up in the following points:
Reorganization into sectorial divisions instead of regional groups. [Editors note: Before the reorganization, each co-op was fairly autonomous, loosely linked in a coop network by ties to the bank. If there were groups these were based on location. The reorganization put all coops that were in financial, manufacturing, or services into their respective sectors, and subjected each to governance by a vice president subordinate to the president of the entire Mondragon group. This president is chosen by the elected general assembly of the entire membership, but the increased authority of this president and the vice presidents weakens the autonomy of the individual enterprises, and threatens such participatory democracy as there was there. The significance is that this represents increased hierarchy, and imposition of a more standard corporate structure on the entire co-op network.]
The transformation of the MCC from a cooperative association into a capital holding company at the end of the 1980s in response to the challenge posed by the EU and economic globalization. Since then the number and percentage of private companies in the group has continually increased.
The creation of the Mondragón University in 1997, growing out of the former polytechnical school, offering studies in business administration (including an MBA), industrial engineering, computer engineering as well as a wide range of postgraduate degrees (3400 students in 2000-2001).
Accelerated growth of all group divisions: currently, MCC has 25 industrial plants outside Spain and aims to increase this figure to 60. The growth path includes an increasing number of external partners (takeovers, joint ventures, strategic alliances).
Internationalization is the main growth strategy implemented by the MCC General Council and nearly every month there is news about a new foreign stake, joint venture, takeover or greenfield production site set up by an MCC company. The automotive group, for instance, is setting up or taking over manufacturing plants close to the customers in Brazil (Batz, Ederlan), India and Mexico (Irizar), the UK (Maier) or the Czech Republic (Cikauto). Fagor, which already runs plants in Morocco and Argentina purchased a majority of the Polish electrodomestic group Wrozamet. The electric stove manufacturer EIKA purchased Czech Foundeik, etc. None of the foreign partners is self-managed.
Introduction of the EFQM (European Foundation of Quality Management) assessment as a general management model for all group member companies in order to accelerate and guide the re-engineering and rationalization processes.
By the end of the 20th century, the MCC with its 120 companies was the largest business corporation in the Basque Country and the eighth largest in Spain (turnover: 6,274 mill. Euros. International sales have increased sharply every year starting in 1990. Total sales doubled since 1995.
As of December 31, 2000, total employment in the MCC was 53,377 (half of them in Basque country and almost double the size of the workforce in 1995 at 27,950). The Industrial Group and the Distributional Group account for the majority of the workforce (see charts).
Evolution of MCC Employment
These trends and business strategies are contributing to excellent economic performance figures including job creation. Excellent economic performance, however, does not automatically mean progress in cooperative self-management and it is from this point of view that I want to raise some questions and critical points on the recent Mondragon development.
1. There is a growing and striking discrepancy between the Basic Principles of the MCC group (open admission, democratic organization, subordinate nature of capital, inter-cooperation, social transformation) as figuring in the ideological setting, and the concrete operative business principles, implemented by the MCC headquarters (customer satisfaction, profitability, internationalization, reengineering). These discrepancies became evident in the labor conflict in 1997, when the Fagor Social Council sharply criticized the rationalization strategy and non-democratic behaviour of the management.
2. The non-member sector of MCC is increasing not only in quantitative but also in qualitative terms. The interests of non-cooperative companies and non-cooperative employees are getting stronger, reinforcing the profit orientation of the group, while the self-management principles are losing power even among the cooperative members.
3. The fastest growing division of MCC is the distribution sector, particularly EROSKI hypermarkets with a workforce of temporary low-paid young women. There are some attempts to introduce participation/codetermination measures such as employee-ownership. Nearly 10,000 of the 23,000 employees in 2000 own shares of EROSKI, but it is not a cooperative system. The Company Report (1999) explains that The concentration that the retail business is undergoing means that the companies must acquire sufficient size to be able to compete in a sector in which volume greatly determines competitiveness. [Editors notefor a recent discussion of Eroski, see David Thomson, Mondragons Eroski as a Mass Retailer, Cooperative Grocer, Nov.-Dec. 2001].
4. Major investments are made abroad and by takeovers of non-cooperative firms, and joint ventures with non-coops are also increasing. In 1999 the external capital stake in the group increased by 16.4% accounting for 42,835 mill. pesetas (pts.) (equity: 334,232 mill. pts), about 13% of equity.
5. The general percentage of hired labor has been increased by law from 10% to 30%, but importantly the temporary workforce isnt included in this 30%, so that an increasing part of the workforce is employed under normal capitalist labor market conditions.
6. The Social Council, representing labor interests in the organizational structure of the MCC cooperatives, often does not work or lacks any operative function. Many MCC members are non-union companies. This may be in part due to the low interest of the unions in cooperatives or the low conflict level in the cooperatives, but at least in some cases there is a strong management prerogative against other social interests.
7. Why does MCC not publish any figures (in Annual Reports, presentations, etc.) about the percentages of the member/non-member workforces, including all temporary workers?
These questions and critical points indicate some contradiction between self-management and capitalist growth strategies in the age of globalization, with the danger of weakening the former in order to strengthen the latter. The development of the Mondragón group points towards a growing distance from original self-management principles in spite of having achieved enough economic margin for more alternative, self-management-oriented policies. This raises the question of why this is happening. Some authors speak of a kind of betrayal (for instance the radical Basque separatists or US anthropologist Sharryn Kasmir [author of The Myth of Mondragon]), but maybe the cooperatives do not have that much choice. Co-ops in a capitalistic globalized market economy cant be socialist islands, and without a support context of social and political socialist movements and strong international cooperative networks they are compelled to adapt to capitalist rules. This, however, does not save MCC from the critics in not investing more effort and resources in strengthening the international cooperative movement.