My first visit to Mondragon was in 1979. I had been searching the globe for years for a Relationship Age society which was also fully integrated into the modern world. My initial reaction to Mondragon was utter amazement. I had never expected to find such a mature and comprehensive example.
The inspiration behind Mondragon was a Catholic priest who in his own way understood the difference between the Material Age (Newtonian) and Relationship Age (quantum) worldviews. From the beginning he was about the business of creating a society based on the latter.
His first assignment upon leaving the seminary in 1941 was to be an assistant pastor at the Catholic church in the small town of Mondragon which is high in the Pyrennes Mountains of northern Spain. Mondragon is in the Basque region and Father Don Jose Maria Arizmendiarrietta was Basque. This was just after the Spanish Civil War which had been won by General Francisco Franco and his fascist party.
Franco had had a difficult time defeating the Basques who had sided with the freely elected democratic socialist government against the fascists. If the democratic socialists won, the Basques had been promised an amicable separation from Spain so they could create their own nation. As a result, after the war Franco treated the Basques like an occupied nation. He even outlawed the Basque language. As you can imagine, this forged a strong bond among the Basques. This was on top of the deep solidarity which already exists within Basque society.
The rainfall in the Pyrennes is such that there has never been a drought. Thus the Basques have never had to migrate. They have lived in those mountains for as long as there has been recorded history. Also, their farming and village life has been based on consensual democratic policies for as long as they can remember. At the same time, they have always been dominated by other people. These conditions, plus a unique language and common religion, have forged a deep feeling of family among the Basque people.
So Father Arizmendi, not only a devout Catholic but also a devout Basque, set about building a Relationship Age society by extending into more sophisticated realms the Relationship Age values which were already present in Basque society. Since Mondragon was a small town very far off of the beaten paths, the people in Mondragon not only had the solidarity of history but also the immediate experience of being prisoners in a prison camp. In this setting, as is usually true of oppressed and imprisoned people, it was natural for Mondragonians to give priority to their identity as Basques — the common good of the group — over their self-interests. A very fertile soil within which to begin.
The Philosophy of Father Arizmendi
To this mix Don Jose Maria added a pinch of wisdom. Mondragon is based on the non-material (call it “agreements” or “mind” or “spirit” or “relationship”). The common good is given priority over a particular good. Or, said another way, people (what is possible for self-conscious beings) come before things.
What is right relationship among people? We all know from our personal experience that the one word answer to this question is “love.” But how does love play itself out in the structuring of a business enterprise?
From my research on philosopher Arizmendi, I have concluded that he observed that lovers behave differently around “things” than enemies do. If we are lovers and we have an apple which we both want, we probably will split the apple as evenly as possible and share it. If one of us has not eaten all day and the other just has had a full meal, the latter will take a little piece and give the rest to the former.
Lovers behave as if they have only one mind and one body. With little effort they share resources as easily together as they make decisions alone.
Enemies, on the other hand, behave in the opposite manner. If we are enemies and we have an apple, one of us might try to gobble it down while the other is not noticing. Or, if too smart for that, we might agree to share it by cutting it in half. Then we would both try to take the bigger piece even if one of us has just had a full meal.
Enemies behave as if they have two different minds and bodies. This is because they think “things” are most important. There being only so many things around at any one time, they try to acquire as many of them as they can. Life for them is a process of competing and taking.
The difference between friends and enemies lies in the fact that the relationship among friends can be timeless and spaceless. For instance, if we make a mistake with a loved one, apologize and are forgiven, it can be as if it never happened. Yet materially it did happen. Relationship can be timeless and spaceless; matter is in time and space. If the relationship is truly loving, there can be no conflict around matter.
Arizmendi simply extended this relationship of oneness known by all in friendships and between lovers into the relationship with all things, even with those who see themselves as our enemies – like Franco and his Guardia Civil soldiers which were nearly always in view. Arizmendi pointed out that they were powerless to decide what people were thinking in their minds. Thus, rather than confront them, which would be acting as if they could, Arizmendi separated what people were doing from the language and belief system within which they were doing it. “Let’s do what we want to do and then simply talk about it in their language and ideas,” is the kind of thing Don Jose Maria might have said. “Since in their worldview they do not think what we are doing is possible, they will think we are doing what they want us to be doing because we are talking their language. We will be left alone to do exactly what we want to do right under their noses. They will be happy and we will be happy without there being any need for confrontation. Soon they will discover that we are growing and they are not because they are stuck standing there watching us.” Of course, they also wanted the occupation to end and they would work for that as well, but in the meantime they would be happy and prosperous and be building a society of their own. Thus, as you can see, Father Arizmendi’s non-violent or loving methods of dealing with an oppressor in this setting did not even necessitate confrontation. (This makes me think that perhaps Father Arizmendi took non-violent political action to another stage of maturity beyond where Mahatma Gandhi had taken…to post-confrontation.)
The History of Mondragon
In 1943 Father Arizmendi assisted the students in his youth group to start a cooperative technical high school using funds donated by the community. There were parents, students, teachers, administrators, and community members on its Board of Trustees. He became head of the school. He taught his students and many in the community through his evening adult study group classes and conversations in bars his Relationship Age philosophy as the way up and out of their predicament. He was not charismatic – people fell asleep during his sermons – but he was sure of his views, consistent, and persistent. The question for which he is most remembered is, “How can we do this in a way which works fully for those in the enterprise and those in the community rather than for one more than the other?” He never let them believe that it was necessary for someone to win and someone to lose. Giving priority to the common good allowed all to win.
By 1954 five of his original eleven youth group boys who had gone to college had worked their way up to management levels at the large industrial company in town, the Union Carrejera. However, they became frustrated in their efforts to apply Father Arizmendi’s ideas. So they left and formed a new company (Ulgor) where they could implement his teachings. They raised funds from local townspeople, just as they had when they had started the technical school. In 1956 they opened a small paraffin stove factory with 24 people. When butane gas arrived in Spain, they converted to butane stoves and caught the industrial wave entering Spain. Within one year, they had 117 owner-workers and had bought two nearby foundries.
Today, the “Mondragon Cooperatives” is an association of over 200 cooperative enterprises, more than 100 of which are owner-worker industrial cooperatives. (Of course, Relationship Age companies do not need to be democratically owned and controlled by the workers; but as is the case with all relationships which allow for maturation, there is a tendency to eventually become democratic and then consensually democratic.) Beautiful, clean, and modern factories stretch out along the valley for several miles and are scattered throughout the Basque region of northern Spain. There are more than 30,000 members whose jobs are virtually guaranteed for life.
More than half of the Mondragon companies are focused on industry, producing the full range of consumer and industrial goods, ranging from plastic rulers to bicycles to robots. Collectively, they are Spain’s top producers of industrial machinery and major home appliances–refrigerators, stoves, washers and dryers, machine tools, etc. In addition, the Mondragon enterprises lead the way in heavy construction, furniture production, farming and high technology. Spain’s first producer of computer chips was a Mondragon firm.
Coop members have a broad health insurance plan for their families, a private unemployment program which pays 80 percent of take-home pay if a owner-worker is ever laid off, and a pension program, separate from their accumulation of profits, paying 60 percent of their salary on the last day of work until death. Upon retirement, most members are also offered a plot for a vegetable garden if they don’t happen to have one where they live.
The over 200 independent “relationship cooperatives,” as I call them to distinguish them from Material Age cooperatives, are members of an association that owns and controls its own bank, The Caja Laboral Popular (The Bank of the Working People). As might be expected, all the businesses do their banking with their own bank.
I was amazed when I learned that the Entrepreneurial Division, which provides venture capital for developing new relationship cooperatives, has close to a 100 percent success rate! In other words, nearly every relationship cooperative it has capitalized has succeeded. By contrast, venture capitalists in the United States consider a 20 percent success rate respectable, with 80 percent of all new businesses failing within the first five years.
The secret of Mondragon’s success is that they have a unique approach to business development which virtually guarantees success every time. It not only assumes every new business will succeed, it makes a commitment to the business until it does and it backs this pledge with a highly-skilled staff at the Association’s Entrepreneurial Division.
They only begin with a group of people who are already friends, never with one individual. They view these natural bonds of friendship as the bedrock upon which the new firm is built. Then the Bank and the founding group agree to stay together until the business is profitable. The members of the founder group put up twice the membership fee others will invest and the Bank loans the business the rest of the capital at approximately 13%. If the business has difficulty, the Bank loans any additional capital at 8%. If more trouble, 0%. If still more trouble, the Bank will donate capital to the business. In other words, the riskier the loan the lower the interest rate! Eventually, even if they have to switch managers or even their product line, the business becomes successful and is able to repay much if not all of the loans, although the Bank often uses a portion of its profits to reduced the size of the loans of all of its relationship cooperative businesses.
You may think this is a very unusual relationship that has been created. However, it is not as foreign as you might think. The Bank is simply relating with these new businesses in the same way any large company relates with any new division it has created to produce a new product. The only difference is that the Bank itself is a division of the one conglomerate called the Mondragon Cooperatives and this is its particular task. The circle defining our “we” has simply been extended by all beyond the corporation to include not only the Bank but the entire community.
Unlike conventional businesses of the Material Age which rank their priorities capital-product-managers-workers, Mondragon ranks its priorities in exactly the opposite order: workers-managers-product-capital. People are given the highest priority and “things” the lowest.
Because capital is mainly stored labor and since the entire community is behind the creation of any business, nothing – not even capital – is ever abandoned. As long as the community is willing to put labor into the formation of a business, there will be capital available. This way the Bank never has defaulted loans, interest rates can be lower for riskier loans because the Bank will never abandon the business (so it’s better to not overburden it), the owner-workers get guaranteed jobs for life, the community gets a stable commercial sector, and the consumers get high quality, inexpensive products. Everyone wins.
In Mondragon, the venture capital to finance new businesses comes from the savings accounts of bank depositors! This is virtually never done elsewhere. Does this scare depositors? Apparently not. The Caja Laboral Popular is one of the fastest growing and most successful banks in the world, with a branch in nearly every Basque neighborhood and more than a million depositors. It has $5 billion in total assets. To assure that the businesses remain strong, the seasoned business experts at the Entrepreneurial Division monitor the performance of every relationship cooperative on a monthly basis and are quick to recommend action if any difficulties emerge.
Mondragon’s Commercial and Community Businesses
The Mondragon association has not limited its activities to business and banking. Its total approach includes the needs of workers, their families and the surrounding community. They have participated in nearly every realm of community development. They have built over forty cooperative housing complexes, many incorporating grocery stores and other retail shops. They have created the equivalent of private day care, grade school, high school, and higher education facilities. The Mondragon educational system includes over forty schools and a college. In addition, there is a student relationship cooperative which allows working students to fully cover their tuition and living expenses for their private high school and college while offering the experience of running their own relationship cooperative. Looking at all these benefits, it is no wonder that people brought up in the system usually stay. To support this, children of members go to the head of the line of those seeking positions in the relationship economy.
The association of Mondragon Cooperatives includes a health maintenance organization, a health insurance company, their own social security system, and a chain of over 300 cooperative food stores — some of which include consumer retail complexes similar to K-Mart or Walmart – with over $600 million in annual sales.
As of the early 1990s, the profitability of the Mondragon cooperatives was twice that of the average corporation in Spain. Of even greater significance, worker productivity in the cooperatives is higher than in any other organization in Spain. While much of their success in this area is the result of Mondragon’s innovative management approach, it can also be attributed to their aggressive use of high-technology production methods, such as robotics. And casting all conclusions about the management performance of Material Age cooperatives aside, in a study by the Anglo-German Foundation for the Study of Industrial Society, the management was found to be some of the most aggressive and innovative ever seen by the Foundation’s staff. Also, the members were found to be highly motivated and personally fulfilled by their jobs.
The commercial enterprises of the Mondragon Cooperatives sold over $1.6 billion worth of goods and services in 1987. 19% percent of this for export. And during the deep European business recession of the late 1970s and early 1980s, when 20 percent of the employees in the surrounding economy lost their jobs, the relationship cooperatives increased employment by 36 percent!
In light of the Mondragon Cooperatives’ extraordinary success record it should come as no surprise that the Association became the Basque’s model for the future. What is surprising is that the cooperatives were built in spite of suffering through over forty years of repression under General Francisco Franco – a testament to the wisdom of Father Arizmendi. The Spanish dictator died in 1975 but the Basques were not granted local autonomy until 1982. Then, in the l989 meeting of the Basque National Congress, Mondragon’s “third way” was adopted as the official economic policy of the new Basque nation. This may be the first nation in modern times to commit itself to the development of relationship economics.
The Structure of a Mondragon Enterprise
Having articulated his philosophy, Father Arizmendi asked his young students and the men and women in the bars and drinking clubs, “If these ideas are true, what kind of an organization does it suggest?”
First, they realized that if they wanted to have a loving organization, they could not define seemingly opposite roles, for example workers and owners, as the responsibility of different people, as if these roles could be separated in time and space. Are not we all both full co-owners and co-workers of the planet at all times before we are anything else?
To have easy and freely chosen one-mindedness, it is best if the owner and the worker in a business are the same person. If I am the person who decides what movie to go to and you are the person who goes to the movie, that will seem ludicrous to us. In this example, we easily can see that to separate the choosing and the doing from one another in time and space (into different bodies) brings fear into the relationship. We will each fear that the other will not be sensitive enough to our needs and wants. The potential for conflict is great.
If I am the chooser and the doer, however, I have no fear at all. I know I will be sensitive to my needs and wants so the relationship between the chooser and doer, being both in me, is peaceful. This inner peace is the result of my freedom; the capitalist in me is happy.
If you and I are going to a movie together and we both are the chooser and the doer, then our relationship can be timeless and spaceless. If we are lovers and you want to go to movie A and I want to go to movie B, we will talk about it. If you want to go to movie A more that I want to go to movie B, we will decide to go to movie A. We will both be happy — yet in the material world I did not get anything I initially wanted while you got everything you first wanted. We are happy because we freely acted as if we had one mind. The limitations of the material world are fully accepted; we could only go to one movie together. There is peace in the relationship. This peace is the result of solidarity; the democratic socialist in us is happy.
Then Father Arizmendi rose above and beyond the Material Age of capitalism and democratic socialism by identifying this as not only the loving relationship between the roles of owner and worker but also between the enterprise and everyone outside the enterprise. The individual freedom of others is honored and the good of all is given priority. Thus, this democratic enterprise is also unlike most other democratic workplaces which explains why it is so successful and most Material Age cooperatives have more often then not struggled or failed. In a “relationship cooperative” all share the same top priority – the common good. In a Material Age cooperative, each has a different highest priority – each individual’s self-interest. Conflict, not cooperation, is still the basis of the philosophy. Thus, as at Mondragon, the Relationship Age worldview will eventually allow a plethora of democratic workplaces to emerge and flourish within a free market economy.
So, the first rule of a relationship cooperative is that the chooser and the doer, the owner and the worker — must be the same person. This merger of roles must go beyond titles and become the actual inner and outer (operational) experience of each member.
Each worker not only invests in the business by working all day but also, for the business to succeed, the worker must also become equally invested as an owner. Mondragon believes there is only one thing that will assure this investment as an owner and that is risking capital (stored labor). Everyone knows what ownership is. It is being at risk if something which is yours gets damaged or lost. People can be fully invested in something without being financially at risk. However, Mondragon wants everyone in the community to be equally invested to be members. So they need to make sure everyone becomes invested 100 percent as an owner. To ensure this, every member is required to loan the cooperative a substantial sum (without collateral) which is the equivalent of the lowest annual salary (about $15,000 in U.S. dollars).
New members do not have to possess this capital on day one. They simply sign a note and it will be withheld from their salary over time with no interest attached. Membership, thereby, is open to all, regardless of financial circumstances. If the business goes bankrupt the next day, however, the owner-workers will still need to pay off the loan to the bankruptcy courts. In other words, even though the capital was not loaned on day one, the owner-worker is fully at risk and invested as an owner from the beginning.
The rest of the structure of a Mondragon cooperative is equally insightful into human nature. Only members of the cooperative can be on its Board of Trustees. This assures adult-adult psychology patterns. Many owner-worker cooperatives in the past have invited non-members to be on their boards, resulting in parent-child (chooser-doer) psychological patterns.
Each board has two main committees: the Management Council and the Social Council. The manager is an owner-worker who is hired as manager for a four-year term. During that time the manager cannot be told what to do; he or she can only be demoted. This unique aspect of the Mondragon design is based on the recognition that management is a specialty skill. So Mondragon hires skilled managers and then gets out of their way and lets them do their jobs. This has solved perhaps one of the greatest problems of all other owner-worker cooperative experiments.
In past efforts, managers were suspect because the workers had come from capitalist enterprises where the hierarchy was used as a power tool. As a result managers often did not have specialized training and, even if they did, the other owner-workers used their influence to demand changes in management’s business plan without sensitivity to the sophistication of its design. Because of these tendencies toward ineffective management, it has been widely believed that democratic ownership could never compete in a capitalist society.
Mondragon has solved this problem by identifying the essence of hierarchy. They discovered that its essence is efficiency and not power. A hierarchical division of labor is the most efficient way for a group of people to do a complex task; and if the relationships among the people are of the timeless and spaceless variety described earlier, then hierarchy is only an efficiency system.
Thus, Article 4 of the Social Statutes of Ulgor (the first cooperative), as written by Father Arizmendi, reads: “Work is the means adopted for attaining a higher level of satisfaction for human aspirations and demonstrating collaboration with the other members of the community to promote the common good. To ensure that it is contributed freely, productively, and in a manner that makes everyone’s collaboration viable, the members shall respect its discipline, namely a hierarchy . . .”
At the same time, the Social Council provides the equivalent of a union withinthe cooperative structure and also serves as a forum to provide workers the opportunity for full participation in management.
Every division of 20 to 50 owner-workers in each business conducts at least a monthly work-group meeting to discuss any issues which have arisen. Each division has a representative who will meet with all the other representatives in the Social Council. The Board of Trustees delegate to the Social Council all the issues with which unions are normally concerned: job descriptions, salary scales, fringe benefits, safety, etc. The Social Council is also responsible for donating 10 percent of any annual company profits to charity. (This compares very favorably with the average American corporate contribution to charity of less than 2%.)
Management and the Social Council representative are part of the group, of course, but also a member of the group who has been elected to the Board of Trustees may participate. Through this system, every owner-worker can be involved in managing every aspect of the enterprise. During these meetings, the owner-workers can discuss anything they choose. Whether an owner-worker becomes enthusiastic about management issues or traditional union issues, his or her substantial capital investment keeps the commitment, both as an owner and a worker, 100 percent present in his or her mind. All owner-workers have one share of voting stock. This keeps them all equal in power. Thus, their relationship within themselves and among each other, as well as with the rest of society, is a one-minded cooperation for the common good.
The structure of the cooperative reflects this one-mindedness in time and space. The capitalist system’s equivalent of management and union are each present in Mondragon and distinct; however, they both are inside the “us” of the cooperative, and are subservient to the Board which assures their total integration and coordination. If the Board ever fails in this task, the general assembly of all the owner-workers, which wields the ultimate power within the cooperative, can overrule the board.
Each cooperative elects representatives to the Association of Cooperatives. The Association in turn elects the Board of the secondary cooperatives, such as the bank, the research institute, the entrepreneurial division and the insurance and social security institutions. The main focus of the Association of the Cooperatives in Mondragon is the creation of owner-worker jobs to expand the opportunity for people to participate in the relationship economy. There probably is no better service to themselves. Job creation gives the current owner-workers greater job security and allows them to be enthusiastic about automation. They are very aggressive in robot development. They recognize that it both eliminates repetitive and dirty jobs and increases productivity, which is important in an international marketplace.
At the same time, they view owner-worker job creation as the best service to the community at large. Once a person has an owner-worker job in a Mondragon cooperative, best efforts are made to guarantee it for life. Thus the person’s family will never be dependent upon public assistance but will continually contribute to the needs and development of society. Therefore, every act of each owner-worker every day is experienced as providing for one’s self and serving society, both simultaneously and both 100 percent. The for-profit versus non-profit personality split with which we are so familiar in our society is absent in the attitude of the Mondragon member. And when you walk through a factory, you feel like you are visiting with someone in their kitchen or working at a church fund raising event and yet their productivity is the highest in Spain.
Finally, the uniqueness of Mondragon is demonstrated in the way profits are distributed by a cooperative. Fifty percent are distributed among the owner-workers based on salary scale and the number of years with the cooperative. However, these profits are not given out in cash. They are allocated to the owner-worker’s internal capital account and regarded as a loan from the member to the company. Each year, just before Christmas, the member receives, in cash, the 6 percent interest paid annually on his or her internal account. Thus, the owner-worker’s investment in the cooperative increases and the cooperative reinvests the worker’s profit to create more relationship economy jobs. The business receives capital without collateral at a low interest rate, normally the most difficult and expensive capital to borrow.
As mentioned earlier, ten percent of the annual profits are donated to charity and the remaining 40 percent is retained in the collective internal account . If the cooperative ever ceases to exist, this collective account will be donated to charity because it is regarded as the portion of profits which is collectively owned and managed for the common good. So, even the profits escape the time and space material axis by seeming to go in two directions at the same time. The owner-worker has the use of his or her portion of the 50 percent because it can be used as collateral at the bank for a loan which will be at an interest rate only a point or two over the 6 percent it is earning. Yet the cooperative has the use of the capital at the same time.
Mondragon’s Five Guiding Principles
Don Jose Maria prepared the first by-laws and social statutes which extended the Relationship Age worldview into every aspect of the agreements upon which the business was based, making sure to leave no opening for an easy unraveling into a Material Age operation. This is evident in the five guiding principles upon which the company operated for more than a year before he could break it down into specifics in the by-laws and social statutes:
2. Individual economic contribution
3. Labor contribution by all members
4. Democratic government
5. Progressive expansion to incorporate other workers
“Solidarity” was their word for “the common good.” It was given highest priority. The original by-laws and social statutes created by Don Jose Maria have been used by every subsequent cooperative.
The significant difference that is Mondragon is the way the founders looked at the situation in the first place. They started from a different place. Everything else was a result of that. The people at Mondragon believe they are all in business together – the owner-workers, consumers, Bank depositors, and community. They arrange it so each owner-worker business is ultimately successful, the owner-workers will have jobs they can control for life, the businesses will avoid wasteful crisis management, the Bank depositors will feel secure about their savings, and the community will not have to worry about disruptive plant closings or absentee owners. Finally, they have the joy of knowing that they all share the same top priority in all they do: the common good. This allows for the feeling of a safe, known, and loving context for the sorting out of all relative differences. If competition is a lower form of cooperation, Mondragon is operating at a higher, more mature level of cooperation and every person shares in the greater benefits.