By Nicholas G. Luviene, from “Building a Platform for Economic Democracy: A Cooperative Development Strategy for the Bronx.” © 2010 Nicholas G. Luviene.

(Note: This excerpt is republished with permission from Mr. Luviene.)

Mondragon is located in the Basque region, a semi autonomous zone of Spain on the Northern border, adjacent to the Southwest corner of France. The Basque region is made up of three provinces: Guipuzcoa, Vizcaya and Alava with the city of Vitoria serving as the capital. The two large cities in the region are Bilbao and San Sebastían.

The Basque people have a strong nationalist orientation that has developed over centuries. One quarter of the Basque (half in the province Mondragon is in) speak an indigenous language, called Euskara.

The region is generally mountainous and, until the last few decades, Mondragon was relatively isolated, with limited roadways connecting the city to the outside world. In the 1940’s Mondragon had a geographically isolated population of little over 8,000 people, limited industry, lack of an educated populace, and intense class divisions. This small city did not seem a likely candidate for dramatic regional economic development but, as it turned out, many of those conditions were important ingredients for an experiment in economic democracy that came to be known as the Mondragon experience.

Background

In 1936, a priest named Don Jose Maria Arizmendiarrieta (also referred to as Don Jose Maria or Arizmendi) joined the Basque military forces fighting Franco during the Civil War. He was subsequently captured, but due to a technicality, his life was spared. He arrived in Mondragon in 1941 after finishing seminary school, but showed little talent for the pulpit. During Don Jose Maria’s studies, he displayed a strong interest in social issues and movements. These interests led him to organize social support services, athletic leagues and a medical clinic through defunct organizational bodies of the church. His success of developing these programs created a base of support that allowed him to continue building institutions in the region for the rest of his life.

The School

The first project that led to the Mondragon cooperatives was the founding of a technical school in 1943. The dominant employer in Mondragon, the Union Cerrajera, operated an apprenticeship program, but limited participation to children of current employees. In response to the company’s refusal to open its ranks, Don Jose Maria organized a parents’ association and started a fundraising campaign for creating a school. The school was organized as a cooperative, with each individual who contributed (approximately 600 people) receiving one vote for electing the members of a general assembly that in turn elected the members of the school board. Once chartered, the school was officially named the Escuela Politecnica Profesional (Professional Polytechnic School). The school initially accepted teenage boys between the ages of 14 and 16 and expanded as students completed each level. The school was critical to the building of the cooperative complex, not only for the technical skills students gained, but also because Don Jose Maria used the school as a means to impart his social vision.

The First Worker Cooperative

In 1956, five graduates of the Escuela Politecnica started the first worker cooperative in Mondragon. The new cooperative was named Ulgor, which was composed from the initials of the last names of the founders. A few years earlier, these five graduates approached Arizmendi with their idea for building a firm. Using a similar technique as they had with the Polytechnic School, they raised seed money from the local community. The firm, which initially manufactured paraffin stoves, became the model for future Mondragon cooperatives.

The Bank

The Caja Laboral Popular, established in 1959, served as the first secondary cooperative within the Mondragon network. Although the polytechnic school was organized as a cooperative, the members were parents and other interested community members.

The Caja’s principal members were three worker cooperatives and a consumer cooperative, forming the first organization to structurally link together other cooperatives and begin building a cooperative network.

Arizmendi was convinced that relying on private investors or private banks would either constrain or ultimately undermine the cooperative movement he was trying to build in Mondragon. He believed that building a cooperative financial institution and integrating it into the project, was critical to the success of building a cooperative movement.

Structured as a credit union, and established for the principle purpose of creating and expanding worker cooperatives, the bank acquired capital for financing projects by providing both savings deposit accounts for members and social security (paid for with member payroll deductions).

As the bank grew, the role of the Caja Laboral expanded beyond finance, later providing an anchoring and coordinating force to maintain a tightly integrated cooperative network. In order for a cooperative firm to utilize the banks financial, analytical, and business development services, the firm must enter into a contract of association, which provides the bank significant control over the internal organization of the cooperative. This arrangement dictated requirements over the internal organization of cooperative firms and governance, capital-to-debt ratio requirements, norms and policies regarding hiring and non-discrimination, and a commitment to expand employment opportunities.

Cooperative Groups

During the 1960s, the Mondragon complex leaders began exploring new ideas to support firm growth while also stemming the creation of large, bureaucratic, corporate-like structures. They adopted a policy of creating a new spinoff firm whenever a product line in one firm matured to the point of being self-sufficient in terms of marketing and manufacturing.

With the expansion of interrelated firms as a result of this policy, the leaders needed a way to maintain some coordination and mutual support among these firms. They developed the idea for a cooperative group that would have a shared governance structure, would pool profits and losses, and would allow for the movement of worker-owners within different firms should one firm need to contract and another have room for expansion.

The first cooperative group was named ULARCO and was made up of the first cooperative firm Ulgor, as well as two other firms, Arrasate and Copreci, which made machine components and tools for Ulgor. Over time, all of the cooperative firms in the Mondragon complex were members of this organizational innovation, known as the cooperative group.

Technology Research and Development

Emerging out of an effort to strengthen industrial research in the Escuela Politecnica, Ikerlan was founded in 1977 with the support of several industrial cooperatives and the Caja Laboral, an applied industrial research cooperative.

The purpose of Ikerlan was to create internal capacity to maintain a high level of technological advancement within the industrial cooperatives. Arizmendi’s rationale for developing this capacity was to remove the dependency from private capital and the need to import advanced technology. As a secondary cooperative, Ikerlan has a managing board that is made up of representatives of the employees, industrial cooperatives and the other participating secondary cooperatives, the Escuela Politecnica and the Caja Laboral. Although originally created to support the Mondragon cooperatives, in 1982 the Basque government began providing significant funding to make services available to traditional firms as well.

Measures of success and growth

Beginning in 1956 with five former students of the polytechnical school and the equivalent of 350,000 dollars, the Mondragon Complex had grown by 2008 to include 243 companies, holding 33.5 billion euros in assets, 16.7 billion in revenue, and employ 92,773 individuals. By that same year, the Caja Laboral (the bank) administered just fewer than 14 billion euros, and the complex was operating twelve technology centers, and 7,311 students were enrolled in Mondragon educational centers, while 891 worker-owners were sitting on governing bodies.

Although the Mondragon complex has experienced several waves of growth, much of it has taken place over the last 20 years. In 1988, the Caja Laboral administered 1.3 billion euros; the complex employed 20,818 individuals and had sales of 1.2 billion euros.

In the following 20 years, the Caja’s holdings experienced a 953% growth, the collective sales of the complex grew by 1200%, and employment grew by 346%. Mondragon divides the cooperative firms and secondary cooperatives into five categories: Industrial, Retail, Finances, Knowledge, and Corporation. Industrial has five subsectors, including capital goods, consumer goods, construction, industrial components, and enterprise services. The knowledge sector is split into two subsections: research and training. Besides the significant growth, the diversification of firms has been an enviable characteristic of the Mondragon experience. Though originally planned to only develop industrial firms, the Mondragon leaders quickly adapted to incorporating firms in other sectors. In 2008, retail firms accounted for the majority of revenue generated and people employed, though not by a large margin.