Last week we came across an article on the Mondragon Cooperatives in Spain. And what are the Mondragon Cooperatives, you ask? (People who are not familiar with them tend to get blank looks, even outrage, when they admit they never heard of them so we’ll spare you the humiliation if you don’t know. And the sense of superiority if you do. . . .)
|Coinage of the short-lived Euzkadi Republic|
First off, “Mondragon” isn’t just a cooperative, or even just cooperatives. It’s a corporation and a federation of producer cooperatives located in the Basque region of Spain, what broke away during the Spanish Civil War briefly to form the Euzkadi Republic. Founded in 1956 in the town of Mondragoe, it has its roots in a technical college founded in 1943 by a Catholic priest, Father José María Arizmendiarrieta. Today the corporation and federation employ around 75,000 people in four areas of activity: finance, industry, retail, and knowledge (don’t know what the last refers to, but maybe data processing?).
Anyway, without going into too much detail, our opinion is that the Mondragon model is excellent — as far as it goes. From the Just Third Way perspective, there could be a few tweaks, as even the rather laudatory article noted some weaknesses in the system, the most obvious of which is governance.
|Alexis de Tocqueville|
By that we mean that the system uses the principles of European style democracy instead of American of the type Alexis de Tocqueville described in Democracy in America (we won't mention today's version).
That is, majority rules. It is the organization that has the rights and doles them out to those with power or as those in power dictate. In American style democracy, majority rules, but only insofar as it respects the rights of the minority. In the American model, rights come from people and are delegated to the organization (this changed in the U.S. with the Slaughterhouse Cases of 1873, but that's another story. . . .).
The bottom line is that, yes, majority should rule, but only up to the point where neither basic human rights nor the rights of the minority are in any way harmed or infringed. What de Tocqueville called “the tyranny of the majority” is always a danger.
There are two other weaknesses not noted in the article, however.
1) reliance on past savings, and
2) the system only applies to workers (and then, as noted, only to some, not to all).
|Louis Kelso warned of the dangers of the slavery of past savings.|
The problem with limiting economic growth is that it restricts financing for new capital formation to what has been withheld from consumption. This not only curtails demand, and thus militates against the feasibility of the new capital, it tends to limit ownership to those with the ability to save, or the persuasive power to borrow the savings of others . . . who take a share of the profits, again reducing the financial feasibility of the new capital.
It is, frankly, much better to finance out of future savings instead of past savings. That is, instead of saving by reducing consumption in the past, you save by increasing production in the future. The future increases in production can be embodied in contracts called bills of exchange, which can be turned into financing by commercial banks, or used directly in trade as money (most Big Business transactions are done this way already; it’s called “disintermediation,” and it’s a way that companies and individuals with good credit can avoid the banking system for large transactions).
As for limiting participation to workers, a more just system would apply to both workers and all interested parties, those who have somewhat inaccurately been described in recent literature as “stakeholders” (we have a special lecture on why that term is misleading, but that, again, is a subject for another day). These include families, employees at non-profits, government workers — everyone. It would be much easier to apply to everyone by using commercial banking techniques and financing out of the future profits of the new capital formed.
The bottom line is that the Mondragon system — in common with many others — could benefit greatly from the application of modern financial techniques and Justice-Based Management.