“Into That Abyss Comes A Village Priest…”

25th Annual Ohio Employee Ownership Conference, Ohio Employee Ownership Center, Canton, Ohio Morning Address, April 29, 2011

— Michael A. Peck, North American Delegate, Mondragon

Good morning everybody. It’s an honor to be here with all the employee owners of your various companies and those of you supporting the employee ownership movement, and those of you wanting to take this to the next level. I personally think there is no more American, bipartisan, and straight down the middle of Main Street American value than employee ownership. I mean, we’re a country founded by immigrants. We’re a middle class country. We believe in pragmatic values. We all came here wanting to own land. Some of us came here under difficult circumstances, but the quest for ownership, from home ownership and now to workplace ownership, has been a constantly recurring American theme. There is nothing like workplace ownership.

I want to talk to you about a number of models that I’ve been involved in, that I’ve experienced personally, and that I think have relevance. What I’d like to do is come up with some templates that have worked historically for people, both in the United States and in Spain.

So, let me try to get you back to 1935. Imagine you’re in a mountainous region that has made things, historically. You’ve made the armor for Europe, the swords, the shields—anything metal, anything that comes out of the ground, anything that’s metal bending—you’ve made it. You’ve competed with the Germans to the north, the Italians to the south. You’re pretty good at what you do. You speak a language no one can understand, that has no reference to any other language known in the world. Some people say you look a little different and there are only 2.2 million of you, and you’re on the wrong side of everything. You’re on the wrong side of the Spanish Civil War, which left over a million people dead in that country. You opted to defend the existing legitimate government and opposed a dictator. You got crushed. Then, Hitler and Mussolini decided to strafe your flagship town, Guernica, without any warning—to practice the weaponry they would later deploy in World War II.

Then, after the devastation of World War II, you have nothing. Your towns are in rubble. Your valleys are quiet. Your people are unemployed. There’s no food. There’s no safety net. There’s no social anything. There is just total devastation.

Into that abyss comes a village priest—he was a substitute because the guy they nominated chickened out. In comes this priest and he looks around. His name is very hard to pronounce; it’s taken me 11 years to learn how to do it. I’m going to say it once and then we’re going to declare victory—Father Jose Arizmendiarrieta. So, our father showed up and he looked around and he said, “Well, unless we collaborate, we’re toast. We have to collaborate.” And, of course, people said, “Yeah, great, what’s that mean?” So, he opened a little school and he preached collaboration for over a decade, and he finally graduated five engineers from that little school, and they formed a little co-op that made kerosene stoves. The priest went to Franco’s government and said, “I’ve got this cooperative, and I’d like to have them qualify for Social Security benefits.” To which Franco’s government said, “What’s a cooperative? The answer’s no.”

So, the priest goes back to the Basque region, and says, “I’ll just create my own mutual cooperative that will take care this.” It’s called Lagun Aro and it’s now one of the top mutuals in Europe—completely profitable, no scandal, does the job for the 100,000 plus that are involved in Mondragon today.

Then, the priest tried to get a loan. He went to the banks. The same answer: “No.” So, he created his own bank. It’s called Caja Laboral. They now have hundreds of branches throughout Spain. They totally escaped the subprime construction debacle that has affected western economies. It’s a huge success and it is the people’s bank. The U.S. National Cooperative Bank that President Kennedy helped to found in Washington, D.C., is modeled on Caja Laboral. And that little school that the priest created became a university, Mondragon University—6,000 students today, owned and run by the students, their parents, their teachers, and the cooperatives that hire the students. For those students who need a part-time job because they need to support their studies, there’s a worker cooperative called ALECOP, where they can work part time as members of a co-op creating educational products.

Today, Mondragon has evolved into something that is breathtaking, and I always refer to my notes because every time I talk about this, someone sends me an email saying, you know, Michael, you didn’t check the latest statistics. So, now, we have about a hundred thousand people—I would say 85,000 in Spain, 14,000 around the world—sharing a single business idea in over 255 cooperatives. Last year, we had annual sales of $24 billion, again, with our own corporate university, our corporate bank, our corporate Social Security mutual. We’re ranked as the top Basque business, the 10th largest in Spain, and the world’s largest industrial co-op. We’re in more than 70 countries. We have 75 production plants. We have nine corporate offices. We have 11 corporate delegations. I’m the North American delegate. We have 12 proprietary R&D centers, and we have 705 patents. But what we mostly have are ten principles, because the principles are why we’re successful.

I’m going to go over some of these principles because I believe they are universally applicable and they separate those who talk the talk and those who walk the talk. Number one is education. Unless you provide education, you can’t get out of the starting gate. The second—and I’m going to take the second one and the third one together because they encapsulate what’s good about this model—it’s called the sovereignty of labor and the instrumental but subordinate nature of capital. Capital is made for the sovereignty of labor. The sovereignty of labor is not made for capital.

Other principles are democratic organization, open admission, and participation in management. In Mondragon, it’s one worker, one vote.

Wage solidarity is another principle. There’s five to six levels between the lowest paid and the highest paid who’s running the show. Contrast that with the United States, where we have 400 to 1 CEO-to-worker pay ratios.

Inter-cooperation between cooperatives—it is so important and for all of you employee owners sitting here, that’s the next level, leading to social transformation and the universal nature of the cooperative experience.

Whenever we try to start manufacturing businesses, the first question we get asked is how are we going to compete with the Chinese, who have 10% of our labor costs? How many of you have confronted the hard decisions about outsourcing, about being outsourced? I’m sure, in Ohio, the list is long. There’s no way we want to compete on a wage race to the bottom. Why should we be in business to see how little we can pay our own people? We should be focusing on the race to the top, and that race begins with higher percentages of distributed equity and the empowerment of workers.

Today, we’re in a fiscal deficit phase where U.S. cities and local governments are going to lose $3 billion in funds for housing, communities, redevelopment projects, public transportation, police and fire departments. These are basic services. This is not good for the least fortunate among us.

Manufacturing in the United States generates about $1.6 trillion, or 12% of GDP, and accounts for three-quarters of the nation’s R&D. Unfortunately 6 million high paying jobs have been lost and 42,000 factories closed over the past decade. I have traveled throughout Ohio—many of those factories are here. We’re living through hard times. We’ve learned the hard way about failed models. We’ve learned “too big to fail” means socializing losses and privatizing profits, and we’ve learned that deindustrialization and disintermediation are not natural outcomes of a competitive economy. They are entirely man-made. They’re creative only for those who profit, and they’re destructive for those who are fired, abandoned, foreclosed and outsourced.

So, there is a new model that is totally American, that is totally based on ownership, that is totally self-reliant and productive and efficient, that makes the people involved as proud as proud can be, and that is the mission of this conference and the mission we’re going to be talking about today, and why Mondragon, for the past 55 years, has been successful.

Don’t get me wrong. There is a saying in Mondragon—“This is not paradise and we are not angels.” However, our mission, our message speaks for itself—the jobs that we’ve created, the fact that every cooperative agrees to put 18% of its profits into those values that I listed—those ten values—that is walking the talk. The global recession hit Spain like any other nation. In Spain, you’re talking almost 5 to 6 million people unemployed. In Mondragon, everybody voted about reducing their salary. They voted to share the pain. They had solidarity, democratic capitalism. It totally works.

Mondragon is the furthest thing from a commune. I mean, you want to talk about hard-nosed, metrics-based capitalism, try watching two cooperatives do business with each other. It’s their money. There are no frills. There’s no perks. There’s no anything. There’s just bottom line and bottom line, low overhead, survival, just like you handle your own bank accounts.

When we talk about the lowest marginal cost of labor, we hear today that even China is getting to be too expensive. Why can’t we focus on how much we can pay our people? Why can’t we use equity as a partial substitution for sustaining community and family wages?

I also want to talk to you about a Made in America model and something that I participated in—a company called SAIC. I was in SAIC from 1988 to 1994. The company was started by a visionary guy, Dr. Robert J. Beyster, and he hired me on Labor Day, very symbolic. I think I came in as an experiment and hopefully, didn’t leave that way. In 1973, SAIC created an entity called Bull Inc., which was their wholly-owned broker dealer subsidiary. They built a limited market in the company’s stocks for employees, and they facilitated this stock exchange for employees who desired to sell SAIC stock to other employees. To keep the stock inside the company, in the hands of current employees and maintain the employer ownership culture, SAIC had a right of repurchase for everyone who left, and in 1981 that was incorporated in its charter.

Bull Inc. was licensed by the National Association of Securities Dealers, and when SAIC grew, the trades between employees reached astronomical proportions. The end result was that Dr. Beyster, the founder, ended up owning less than 2% of stock, as the company’s single largest shareholder, with 90% of the company’s stock in the hands of employees, including secretaries and staff. People that in a vertical situation would be placed at the bottom of their enterprise in terms of pay ended up doing extremely well.

Now employee ownership culture isn’t a substitute for business metrics. You still have to work hard. You still have to have a good product. You have to know what you’re doing. But if you can do all that, it’s what allows you to scale to the next level.

We are witnessing something called “economic patriotism.” Economic patriotism, to me, is not sending jobs overseas. Economic patriotism, to me, is having profits we circulate at home. Economic patriotism, to me, is the stakeholder economy, not the shareholder economy.

We need to reach for the two great things that the Mondragon model offers. The Mondragon model offers, first of all, employment, under a common philosophical umbrella. When one cooperative isn’t doing well, you can help out in terms of taking people from one coop to another, retrain, and keep them employed. When there are excess profits in one side, you can help an industry that needs some financial assistance. It doesn’t mean you send money down a rat hole. Tough business decisions are made, but the capital is there and the promise is there. It has to be voted on. It’s done by consensus, but the mechanism is there. Imagine if you had a Mondragon-type template and you were able to help each other out, in terms of not only doing more business with each other but also keeping the human equation foremost, understanding that employment creates profits, not the reverse, and the money is there, that money part which is so hard for startups, for mezzanine financing and small business lending.

The union co-op model that we’ve put together between Mondragon and the Steelworkers is an idea of taking progressive unions and co-ops and melding them together. For too long, they’ve been ships passing in the night. We now think they should work together. We want to help solve structural unemployment. We want to resolve ethical challenges between those who have too much and those who earn too little based on their contributions, in the workforce. We want to create next generation partnerships, and we want to build a workplace that is creative, productive and just.

Thank you.