When the Right Ones Get It Wrong

The Mondragon Cooperative Group (“Humanity At Work” through Cooperation, Participation, Social Responsibility and Innovation, headquartered in the Basque region between Spain and France) is ranked as the world’s largest worker-owned industrial cooperative group but also as the top Basque industrial group, tenth in Spain with 80,000 personnel, a presence in 70 countries, and winner of the 2013 Financial Times “Boldness in Business” award. Mondragon’s 60-year mission is to generate wealth for society through values-centric and market competitive business development and job creation under the “one worker, one vote” cooperative framework where labor is sovereign and capital, while essential, is subordinate to sustaining job creation.

Yesterday, Fagor Electrodomestics, which evolved from the original Mondragon household white goods manufacturing cooperative (ULGOR) to hold almost a third of its domestic sector market share for decades, was declared formally insolvent (859 million Euros in debt, 5,642 jobs at risk, 100,000 Euros left in the corporate account). Predictably, global media “punditcrats” have wasted no time in jumping on the “see, I told you so” bandwagon. Case in point, The Economist, “Trouble in workers’ paradise – The collapse of Spain’s Fagor tests the world’s largest group of cooperatives.” This publication and others speculate as to whether cooperatives and similar hybrid forms of worker ownership can survive the “real world” of boom or bust cycles that both predatory and virtuous capitalism practices mete out to passive adherents and active practitioners, beneficiaries and victims.

Also yesterday, Mondragon’s social mutual, Lagun Aro, announced it would propose a 1.5% raise in contributions from all members at Mondragon’s next General Assembly to support its role in providing additional unemployment benefits to displaced Fagor Electrodomestics worker-owners. This other news received only local media coverage and therein lies the conventional wisdom disconnect from the healing power of practicing metrics-based solidarity.

The viability of market-based capitalism as a sustainable system is at a moral and productivity crossroads. Today’s predatory capitalist c-suites and boardrooms celebrate Davos-sanctioned, creative destruction roll-outs that deploy global labor arbitrage as a sustainable business practice to return higher profits to shareholders often at the expense of stakeholders. Multinational conglomerates defending the “corporation as person” concept when politically and legally convenient pick and choose who gets the juice and where to pull the plug.

Increasingly complex corporate structures reinforced by deliberately opaque and contorted shareholder governance machinations further widen the divide between wealth-imbibing cloud dwellers who master tax regime avoidance and those who eke out their rented, retail “pay-go” lives in flyover country.  Around the world, startling numbers of disenfranchised, dispossessed, cheated, unemployed and under-employed economic refugees, discouraged and disgruntled Millennials, working class wage slaves, abandoned seniors, and middle class ejects are looking for a better way forward. Today, America ranks below Zimbabwe in the areas of equal opportunity and social mobility.

The Economist as keeper of the predatory capitalism pyrrhic-victory flame makes no apologies for modern global commercial business trafficking of labor as just another commodity to trade up or down.  It is not surprising, therefore, that this vaunted publication misreads the symptoms and then bungles the cure when diagnosing Mondragon’s first major business sector unwinding after almost sixty formal years of documented and unprecedented job creation and economic expansion.

So let’s set The Economist straight.

In today’s globalized supply and demand environment where developing world command and control economies currently field labor costs at roughly ten percent of OECD countries, there should be little surprise when mature industries in mature economic ecosystems fail to produce positive profit and loss statements. Globalization has shown that reoccurring business cycles are location-independent. Successful sustaining enterprises over time learn to treasure the journey, the choices made and the roads not taken, as destination goal posts shift based on absorbing constant incoming change.

What does solidarity and labor sovereignty mean in the Mondragon context when winding down an entire industrial sector and transitioning 5,642 worker- shareholders for the first time in its history? First, Mondragon already invested 300 million Euros to stabilize Fagor Electrodomestics during the past three years without that company reaching breakeven status. Second, Mondragon’s General Council communicated its commitment to support the continued employment of displaced cooperative-members as a first priority and established an “Employment Corporate Office” to generate new jobs and diversified businesses, in addition to setting up another 50 million Euros fund by the next Mondragon Congress to fulfill this goal. Current Fagor Electrodomestics workers will receive 80 percent of their salary from the Mondragon Mutual, Lagun Aro, with the entire Corporation helping to pay for these additional unemployment resources.

In today’s Spain where 21.6 percent of all inhabitants live below established poverty lines, these Mondragon decisions are made by worker-owners voting for the welfare of fellow worker-owners. One can only imagine how such a phenomenon might have affected outsourcing-trashed U.S. cities like Detroit, Toledo, Cleveland, Youngstown, Gary and the rest of the endless list of industrial ghost municipalities now haunting the American landscape.

Mondragon is focused on allowing its hosting communities to buy time to develop new solutions exhibiting diversity and higher value production chains to emerge from what has become commodity employment in the case of electro domestic white goods. The Corporation’s meta-investment formulas and instruments facilitate integration and blend the power of one with the inputs of many. In distributed and participative markets with interactive technologies superseding the importance of location, Mondragon’s internal processes permit distributed and participative solution sets to recover from industrial sector failure. The opportunity challenging Mondragon throughout the Fagor Electrodomestics unwinding process is how best to re-imagine and re-invent by leading with values and principles and a return to conceptual philosophical origins and business practices.

The Economist misfires in its article’s concluding lines justifying the inevitability of bringing in “American hedge funds as outside shareholders” in an attempt to prove that predatory capitalism has its place even inside a highly externalized, virtuous Mondragon model.  The real question is who influences whom?

Mondragon is betting that its cooperative heart can unwind failing business cycles currently clogging one of its cooperative arteries and in the process create new start-ups and better employment choices. Mondragon’s worker-owners are betting that their collective values cure is stronger than any individual industrial sector disease. Why shouldn’t the Fagor Electrodomestics reinvention challenge offer an opportunity for Wall Street money to escape from its inherent scandal tautology and instead of shamelessly power-washing itself to obtain momentary image boosts – strive to heal its current “bankster” aura by uniting with a proven transforming force to deploy “business penicillin” that co-locates mold to effect a cure?

Actually, the virtuous cycle money supply is already market-ready without having to access hedge funds. Pittsburgh’s Heartland Capital Strategies nonprofit reports that in “1978, workers owned $153 billion in U.S.-based Defined Benefit pension plans. That’s grown to $9 trillion including $4 trillion” in public and private plans where workers have a voice. “Globally, responsible investor assets stand at a staggering $30 trillion” with impact investors assets estimated at $14 trillion dollars. In this scenario, who really needs voracious hedge funds unless they want to clean up their act and invest in enterprises where labor is sovereign and capital, while useful, exists to support labor and not the reverse?

Much more than just another unique corporate entity representing an association of independent, self-managed cooperatives that have evolved a series of mutual support mechanisms over half a century, Mondragon lives, breathes, and continues based on emerging forms of solidarity, integration, and growth while respecting the autonomy of individual worker rights and business unit decision-making processes. There is a legal distinction between a holding corporation and an association of independent, self-managing companies that have annually voted going on 60 years to reaffirm their intent to self-structure based on the Mondragon principles. However, this difference pales in comparison with Mondragon’s highly evolved meta-infrastructure spirit and daily business practices which have resulted in unprecedented growth, job creation and prosperity in a region that started out after a devastating civil and then world war on the verge of a complete meltdown.

Perhaps The Economist might confer with The Financial Times and align their respective market-based perspectives on Mondragon’s inherent transformative capacity. The Financial Times’ 2013 “Boldness in Business” award was granted in recognition of Mondragon’s “multi-localization” approach to driving domestic employment value chains and metrics upwards while expanding internationally, turning commonly accepted, predatory capitalist, zero-sum outsourcing and off-shoring practices on their respective heads. Perhaps The Economist could make the first move by understanding that instead of “trouble in workers’ paradise,” the real Mondragon is composed of everyday worker-owners who understand firsthand that “this is not Paradise and we are not angels” (a common, self-effacing Mondragon refrain to anchor unrealistic external expectations).

Mondragon’s post Fagor Electrodomestics repositioning will converge with impact investing antidotes or new worker-friendly currencies offsetting global labor arbitrage in favor of local living economies to expand democratic working class ownership through eclectic hybrid equity models. In America, this approach reflects and honors the nation’s founding hybrid history and culture with not a moment to lose as there are now two Americas, one who owns and one who rents or gets leased out on a good day and on bad days outsourced or off-shored as a matter of accepted business practices.

In our rapidly evolving global social media economy, convening interactive technology aides and abets this trend towards eclectic hybrid equity models through its potential to increase both individual freedom as well as deepened community collaboration. The most logical path forward is to analyze examples that match principles to practice and bet on those business structures. Mondragon’s gift to its hosting communities is the luxury of connecting continuously incoming business cycles with the opportunity to control time to a certain extent and position competitive responses that also honor and advance workers.   In turn, Mondragon’s workers-owners revalidate this civic compact by voting to recommit professional time and trust to tried and tested values that have triumphed in the face of previous adversity. Time being the ultimate non-renewable resource; resilience and reinvention are where Mondragon shines.

- Michael Alden Peck is Mondragon’s North America delegate since 2000, based in Washington, D.C. -