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The Mondragon Model

posted Aug 22, 2011, 7:09 AM by J Poy   [ updated Sep 16, 2011, 6:14 AM ]
"The Mondragon Cooperative was started in 1954 by a Jesuit priest named Don Jose Maria Arizmendiarreta. ...  When he arrived [in the Mondragon region] in 1941 he found great unemployment, poor education, and no positive vision of the future.  The assets of the region were few but important:  industrious people who knew how to work hard, solidarity based on being treated badly by the Spanish government for hundreds of years, and a strong social structure.

The Principles of Mondragon

1. Power Structure

Democracy.  "It is a cooperative; therefore, every worker has a vote.  The workers elect the board of directors and the board of directors hires the managers.  This has a positive effect on the workers, because the people they elect are the people who hire their supervisors. ...
"There is also a 'watchdog' council of workers that watches upper management and a social council made up of representatives of teams of twenty to fifty workers."

2. Financial Structure

"The financial structure of the Mondragon Cooperative Complex ... has no parallel in the world. ...
"All workers must put some of their own money into the cooperative they are part of.  The money accumulates interest but can only be removed upon retirement.  It guarantees that everyone has something to lose if the enterprise fails; it also carries with it a reward at retirement if the enterprise is successful.
"Second, a bank was created within the cooperative structure that serves the cooperative and is itself a cooperative.  It has a very clear mission, which is to fund new jobs so that all people who wish to wrok in the Mondragon area can do so.  This mission is even more important tha manking the best return on intestment, thus violating the prevailing paradigm of banking. Simply put, the Mondragon cooperative bank risks its capital to protect the job base of the community."

3. The Education Connection

"Don Jose has started a technical school back in the 1940s to serve the young people in the Mondragon region.  That school evolved along with the cooperatives.  The needs of the growing cooperatives were always connected to the curriculum at the school.  Many of the students also worked at the co-ops, so they could see the direct connection between their preparation and their job. ... This direct connection to specific enterprises and jobs is rarely emulated in the U.S. ... a complete community, with a commitment to sustain an educational system that reinforces the ability to keep jobs within the region."

4. Pay Scales and Equity

"The Mondragon Cooperative Complex had three things going for it:  fairness as part of the culture, a distinctly Christian slant to its enterprise ethics, and the Basque hallmark of moderation."
Specific pay ratios:  "The person at the top could earn no more than six times the salary of the person at the bottom of the cooperative."  ... eventually increased to 15 to 1.
"Raises ... are determined by many standard measure of productivity and absenteeism, but they also include unusual measures such as 'relational skills,' or how well the worker gets along with other people.
"Salaries are called anticipos, payments in advance of profits.  Workers who choose to leave their job can be penalized up to 30% of the accumulated profits in their retirement fund. ...
"Before someone is laid off, any profits accumulated during the year in the specific cooperative would be used to pay for the job position.   If that is not enough, then all wages in that cooperative are dropped to 85% of standard.  If that still isn't enough ... the worker is transferred to another of the co-ops int he Mondragon structure. ... Finally, if all of those efforts fail, the worker goes on unemployment [sounds like Complex is self-insured?] and immediately begins receiving educational benefits to acquire new skills as fast as possible."

5. Retirement

"The Mondragon Cooperative Complex self-funds and fully funds its retirement package.  Workers contribute 32% of their earnings and receive 60% of their final salary.  ... One nice touch is that as part of the retirement package, the worker is given a vegetable garden plot if he or she doesn't already have one."

More about the bank within the Mondragon cooperative:

It "perceives itself not just as a guardian of the money it uses, but as a catalyst for creating new businesses within the Mondragon Cooperative Complex structure."
"It holds the savings and retirement funds of the workers and processes all the funds flowing through all the Mondragon enterprises.
"It provides
  • strategic information and guidance for both old and new businesses
  • up-to-date marketing reports that suggest new products and services that are needed in the region and throughout Europe
  • A staff of older executives ready to mentor new cooperatives
  • A willingness to fund start-ups to create new jobs in the area"

from "The Mondragon Model" by Joel A. Barker, a 9-page essay in The Drucker Foundation's The Organization of the Future, edited by Frances Hesselbein et all (1997)  ... book is available through the LA Public Library

More about the Mondragon corporation from other sources: