Mondragon: a
for-profit organization that embodies Catholic social thought
by David Herrera
·
1
Abstract
The Mondragon
Corporacion Cooperativa was founded in the 1950s to promote social and economic
development in the Basque region of Spain. Its underlying mission and its
working guidelines are based on Catholic Social Thought (CST). In this article
we see how the CST foundations of Mondragon have led to a business organization
that is very different from the standard business model.
**********
Introduction
Too often in business
schools we look at the modern large corporation as the only model for
organizing a business enterprise, yet there have been many successful
organizations that have adopted a different form. One example is the Mondragon
Corporacion Cooperativa ("Mondragon"), a large and successful
business which has been built on Catholic social thought principles. This
article addresses the response to the "calling" of the Mondragon
Corporacion Cooperativa, a for-profit organization, to promote Catholic social
thought by embodying it in its stated principles and in its day-to-day
practice. Mondragon responds to a calling to holiness as an organization that
competes successfully in a global market economy while maintaining its
congruence with Catholic social thought. My goal is to illustrate how Mondragon
embodies Catholic social thought, as reflected in the 10 basic principles (see
Appendix) which, as will be shown, are not just part of an ideal set of
guidelines, but are substantiated as pragmatic policies and practices.
This article is
structured as follows: first, there is a description of Mondragon and of a
contrasting "traditional organization." Then a brief definition of
justice and solidarity according to Catholic social thought is provided, and further
explicated throughout the article as the various practical applications of
Catholic social thought in Mondragon are described. And third, the Mondragon
principles, policies and practices are described, which, for the sake of
clarity, have been classified under social justice, economic justice, the
dignity of persons and their work, and solidarity, the four main themes in
Catholic social thought. However, as will become evident to the reader, the
Mondragon principles and practices are closely interrelated and are difficult
to classify exclusively in terms of any one concept, because Catholic social
thought permeates all aspects of Mondragon.
Description of
Mondragon and a Traditional Organization
The following descriptions of Mondragon and a "traditional
organization" distinguish the two types of organizations. Mondragon, a
for-profit organization with headquarters in the Basque region of Spain, was
founded in 1956 by five young engineers, inspired by a Catholic priest by the
name of Jose Maria Arizmendiarrieta. Today Mondragon has 60,000 managers and
employees (called worker-owners) in a conglomerate of almost 150 cooperative
enterprises, with annual revenues of eight billion dollars. Mondragon has
industrial, retail and financial operations throughout Spain, 34 manufacturing
facilities in 12 other countries, three major research and development centers,
a multi-campus university, and its own bank and health care system (www.mondragon.mcc.es). Based on
Arizmendiarrieta's teachings, and on the evolving practical experience of the
Mondragon worker-owners for the last 45 years, Mondragon has institutionalized
a system of work that is consistent with Catholic social thought. Mondragon is
a principle-based, worker-owned and managed cooperative organization. It
promotes broad participation in management while distributing decision-making
power throughout the organization. Mondragon is a unique example of an
integrated economic and social system that has thrived in profitability and
accelerated growth for almost 50 years.
For the purpose of
this study, a traditional organization (for-profit or not-for-profit) is
characterized by top-down decision-making, (with) restricted participation of
employees, a concentration of power at the top of the organization, and limited
information about the organization available to employees. A traditional
for-profit organization is further characterized by capital investors and
employees usually being different people; maximization of economic benefits to
primarily reward capital investors; objectives of investors, managers and
workers often not being consistent with each other; and voluntary economic
participation in the community.
Description of Four
Concepts in Catholic Social Thought
For our present
purposes, we will limit ourselves to four basic concepts of Catholic Social
Thought: social justice, economic justice, the dignity of persons and their
work, and solidarity. Abbreviated descriptions of these terms are provided for
reference.
Social justice
"implies that persons have an obligation to be
active and
productive participants in the life of society and
that society has a
duty to enable them to participate in this
way" [emphasis
on the original, National Conference of Catholic
Bishops--henceforth
abbreviated as NCCB, No. 71]. The right to
participate in
economic gains and decision-making is also fostered
in Catholic social
thought. "The active sharing of all in the
administration and
profits of ... enterprises ... is to be
promoted,"
because, in economic enterprises, it is persons who
work together, that
is, free and independent human beings created
in the image of God
[Gaudium et Spes, 68].
Economic justice is
inextricably connected with social justice,
because the latter
cannot be attained without addressing the
former. "Work
with adequate pay for all who seek it is the primary
means for achieving
basic justice in our society" [NCCB, No. 73].
Two of the main
components of economic justice, therefore, are the
right to work and
the right to a just wage [Laborem exercens,
18-19]. "Human
labor which is expended in the production and
exchange of goods or
in the performance of economic services is
superior to the
other elements of economic life. From this fact
"arise[s] every
man's duty to labor faithfully and his right to
work. It is the duty
of society, moreover, according to the
circumstances
prevailing in it, and in keeping with its proper
role, to help its
citizens to find opportunities for adequate
employment"
[Gaudium et Spes, 67].
The dignity of human
persons and their work has been part of
Catholic social
thought from the beginning. As stated in Genesis:
"Man is made to
be in the visible universe an image and likeness
of God Himself, and
... he is called to work. Work is one of the
characteristics that
distinguish man from the rest of creatures,
whose activity for
sustaining their lives cannot be called work"
[emphasis in the
original, Laborem exercens] ... "As the 'image of
God' [man] is a
person ... a subjective being capable of acting in
a planned and
rational way ... As a person, man is therefore the
subject of
work" [emphasis in the original, 6].
Solidarity, for the
purpose of this article, is understood as a
pursuit of the
welfare of all. According to Pope John Paul,
solidarity "is
the structural response demanded by gospel love ...
[It] is undoubtedly
a Christian virtue" [12:185]. As described in
Pope John Paul II's
encyclical letter Sollicitudo rei socialis
(The Social Concerns
of the Church), solidarity is "a firm and
persevering
determination to commit to the common good ... to the
good of all and of
each individual, because we are really
responsible for all
(as cited in Pilarczyk [19:23]). "Solidarity,"
adds Pilarczyk,
"is justice writ large."
Mondragon Principles,
Policies and Practices and Catholic Social Thought (1)
It is relevant to
initiate the description of Mondragon by referring to Don Jose Maria
Arizmendiarrieta, the Catholic priest who inspired the founders of Mondragon
and whose social thought has profoundly influenced its principles, policies and
practices throughout its history. Arizmendiarrieta never wrote anything for
publication but excerpts from his journals have been published in English as a
book called Reflections. (2) Due to the essential role that Arizmendiarrieta
and his social thought have played in the creation and continued transformation
of Mondragon, this article will include numerous citations from the Reflections
book, and for simplicity, unless otherwise noted, his citations will be
identified with a page number only.
Mondragon
Principles that Promote Social Justice
The two seminal principles that serve as a foundation to promote
social justice in Mondragon are democratic organization, and worker-owners'
participation. About democracy, Arizmendiarrieta wrote: "Democracy, once
adopted nobly, is conducive to discipline, to responsibility, to the
reaffirmation of solidarity. Definitely, democracy is conducive to authentic
social progress" [20:52-53]. About participation, Arizmendiarrieta stated:
"The self-managed society will be that in which all of us, with our
education and willingness to participate, are able to realize
accomplishments" [20:57]. He believed that participation in
decision-making was necessary to achieve individual and collective freedom and
that effective participation was possible only after one became educated and
informed about the issues being decided upon [2:818-819].
The Grounding of Justice and Solidarity: Mondragon as a
Democratic Organization
The "Mondragon experience" is possible, first and
uppermost, because of the principle of Democratic Organization, which creates
the legal, moral and operational environment that allows all other principles,
policies and practices to exist. According to Pilarczyk, Catholic Social
Thought implies that persons should participate in governance according to
their capabilities. In other words, "the term social justice ...
designate[s] the right and obligation of individual persons to be involved in
determining the way in which larger social, economic and political institutions
in society are organized" [19:52]. In fact, Pilarczyk adds,
decision-making concentrated in small groups robs everybody of part of their
human dignity, and even the most benevolent ruler is unjust because "he is
disregarding the human responsibility and the human dignity of his people. He
is depriving them of their basic right to participate in forming the world in
which they live" [19:56]. In a related matter, addressing the need to
institutionalize representation, participation and equality at Mondragon,
Arizmendiarrieta wrote: "The workers of a firm cannot affirm their
position as a work factor in the heart of an enterprise until they have
representation and participation. The work community needs to have a juridical
representation." And added: "Fellowship and solidarity reign where
there is equality. When this base is lacking, these feelings are merely
temporary and will soon pass" [20:130-131].
Mondragon is accordingly characterized by institutionalized
democratic ownership and decision-making. The Democratic Organization principle
inextricably links capital and labor by distributing the formation of capital
and decision-making power equally among workers and managers. That is,
regardless of job classification or hierarchical position, Mondragon
worker-owners invest the same amount of initial capital, and participate in
decision-making through a one person/one-vote system. The initial capital
contribution is equivalent to one-year's minimum salary. Eighty-five percent of
this contribution is deposited in the worker-owner's capital account and 15% in
a collective reserve fund. The 85% contribution belonging to the worker-owner
draws interest and can be withdrawn when the worker-owner leaves the company.
The 15% contribution becomes part of a Mondragon reserve fund. This
collaborative system of formation of capital distributes the responsibility and
risk of the initial investment equally among worker-owners, instead of
selectively among a few major capital investors, as would be the case in
traditional organizations. Furthermore, since worker-owners are capital
investors, they are entitled to profit sharing. The distribution of profits, however,
is variable because it is not based on capital invested but on the type of work
done and the performance of the cooperatives.
The Mondragon principle of Democratic Organization, more
generally called workplace democracy, emphasizes worker-owners' social and
economic values that reflect their rights and responsibilities concerning their
personal needs and those of the organization. George Cheney defines workplace
democracy, as practiced in Mondragon, as:
a system of governance which truly values individual goals and
feelings (e.g., equitable remuneration, the pursuit of enriching
work and the right to express oneself) as well as typically
organizational objectives (e.g., effectiveness, and efficiency,
reflectively conceived), which actively fosters the connection
between those two sets of concerns by encouraging individual
contributions to important organizational choices, and which
allows for the ongoing modification of the organization's
activities and policies by the group [5:133].
As
defined by Jose Maria Ormaechea, (3) one of the five founders of Mondragon, the
Democratic Organization principle "proclaims the basic equality of
worker-members with respect to their rights to be, to possess and to know,
which implies the acceptance of a democratic organization of the company"
[18:144]. The "right to be" advocates social justice because
worker-owners have a right to be heard [19]. They can voice their ideas and
concerns and participate in the governance of the organization through their
membership, opinions and vote.
The "right to possess" promotes economic and social
justice because through worker ownership, equality and the distribution of
power among Mondragon managers and workers is ensured. This is consistent with
Laborem Exercens' suggested "proposals for joint ownership of the means of
work, sharing by the workers in the management and/or profits of business,
so-called shareholding by labor ..." (emphasis in the original, 14). Joint
ownership and participation have also been proposed in the encyclicals
Quadragesimo Anno (1931) and Gaudium et Spes (1966).
The "right to know" fosters social justice because it
gives worker-owners an access to accurate information to participate in
decision-making. At Mondragon, information about financial and operational
activities and results are published openly for all worker-owners.
The Implementation of Justice in Mondragon: Participation
If social justice is made possible at Mondragon primarily
through the existence of a democratic organization, worker-owners' democratic
participation in decision-making translates this possibility into principles,
policies and practices that determine how Mondragon's worker-owners live and
work.
The Centrality of Participation in Decision-Making
Worker-owners' participation in decision-making permeates
practically all aspects of Mondragon. Having an equal opportunity to
participate has broad implications for economic and social justice, because
democratic participation assigns the responsibility and the right to make
decisions that will affect present and future worker-owners, their families,
organizations and communities.
The central role of democratic participation in decision-making
in Mondragon can not be overemphasized. That is, examining it in perspective,
worker-owners' participation in decision-making has been, is, and will continue
to be the determining factor in the establishment of all institutionalized
policies and practices. These decisions may impact the worker-owners' own
cooperatives as well as the decisions being considered at corporate levels,
which are influenced through representatives who reflect worker-owners'
decisions made at their own cooperatives. This process is consistent with the
statement: "[S]ince more often ... decisions concerning economic and
social conditions ... are made not within the [individual cooperative] business
itself but by the institutions on a higher [corporate] level, the workers
should have a share also in determining these conditions--in person or through
freely elected representatives [Gaudium et Spes, 69]. Since Mondragon has been
a participatory organization from the beginning, (4) [6], it can be stated that
all principles, policies and practices at Mondragon today owe their existence
to worker-owners' participation in decision-making at some point in their
history.
Breadth and Scope of Participation
The principle of democratic organization and the resulting
worker-owners' participation in decision-making affect practically all aspects
of the organization, as illustrated in the following list. Various items in
this list have implications for justice and solidarity, and will be further
described, although not specifically identified, throughout this article.
1. Economic participation
a. Mondragon initial investment--assuming equal risks and
contributing with an equal monetary amount
b. Ownership--having equal rights and responsibilities
c. Profit-sharing--based on work performed and initial
investment
2. Democratic participation in decision-making
a. At the corporate level
i. Election of corporate representatives at each cooperative
ii. Decision-making through these corporate representatives who
convey decisions made by all worker-owners' votes at each cooperative
b. Participation at each cooperative
i. Election of executive committee, audit and social committee
members
ii. Management of enterprise by individual worker-owners'
participation in discussions and voting
iii. Personal job design--participation in job descriptions
3.
Participation in community development
a. Job creation--monetary fund through personal profit-sharing
contributions
b. Community development projects--10% of worker-owners' profit
sharing
Finally, it is interesting to note that the reach of
worker-owners' decision-making at Mondragon, as exemplified in the above list,
is in marked contrast with the absence of participation by most managers and
employees in practically any corresponding aspect in traditional organizations.
Participation and Personal Growth
The concept of social justice in Catholic social thought also
includes the responsibility for human self-realization through work. It
includes a duty to organize economic and social institutions so that people can
contribute to society in ways that respect their freedom and the dignity of
their labor. That is, work should enable the working person to become
"more a human being," more capable of acting intelligently, freely,
in ways that lead to self-realization [NCCB:37]. Furthermore, Catholic Social
Teaching:
recognizes the legitimacy of workers' efforts to obtain full respect
of their dignity and to gain broader areas of participation in the
life of industrial enterprises so that, while cooperating with
others and under the direction of others, they can in a sense "work
for themselves" through the exercise of their intelligence and
freedom [Centesimus Annus, 43].
Accordingly, Mondragon "believes that the democratic
character of the Cooperative is not limited to membership aspects, but that it
also implies the progressive development of self-management and consequently of
the participation of members in the sphere of business management ..."
[18:158]. These statements indicate that worker-owners are not merely allowed
to participate in the management of Mondragon. Instead, democratic
participation is a privilege and a responsibility, so worker-members are
expected to be part of the decision-making process. Furthermore, worker-owners
are encouraged to improve their education in order to participate competently
in all aspects of work, as members of the governance structures, as
representatives of worker-owners groups in these structures, as informed
voters, and as vocal participants in Mondragon cooperative groups.
Moreover, worker-owners' participation in an organization such
as Mondragon reaches beyond sharing economic gains. Greg MacLeod, referring to
the growth of human persons, writes: "... [P]articipation in a creative
process confers on the worker the dignity of being part of something bigger.
The worker becomes more of a person by actualizing inner potentials. As a
person, the worker has not only mechanical abilities but intellectual and moral
capacities" [16:63]. At Mondragon, participation is a vehicle for personal
growth, as worker-owners utilize their intellect, knowledge and freedom to make
decisions that have consequences beyond their own work.
Consequently, participation in ownership and profit sharing
schemes in organizations is positive but is not enough. To attain social and
economic justice, broad democratic participation in decision-making is
required. This is where ownership schemes in traditional organizations often
fail, because participation without decision-making power may improve economic
justice to a limited extent but does not foster social justice in the worker or
the community. Whyte and Whyte, comparing Mondragon to traditional American
organizations, write: "[t]here is a marked contrast between the Mondragon
cooperatives and U.S. private companies regarding participation and
governance." In the few cases in which workers participate in U.S. firms,
"... they constitute a small minority and have little influence. In
Mondragon, all major policy changes are subject to final decision by a majority
of the vote of the members" [24:228].
Mondragon Principles That Promote Economic Justice
There are several Mondragon principles, policies and practices
that promote economic justice. The Democratic Organization principle has
already been shown to provide equality in initial investment and ownership and
profit distribution. In addition, aid to socioeconomically-disadvantaged job
applicants, a no-layoff policy, and limited pay ratios between managers and
factory/field workers are examples of economic justice at Mondragon.
Aid to Socioeconomically-Disadvantaged Job Applicants.
Mondragon has a non-discrimination policy in hiring, as
described in the Open Admission principle. Mondragon declares itself "...
open to all men and women who accept the Basic Principles and prove themselves
professionally capable of carrying out the jobs available ... [18:141]. This is
consistent with Catholic Social Thought in that "access to employment and
to professions must be open to all without unjust discrimination: men and
women, healthy and disabled, native and immigrants" [4: No. 2433].
There are some Western
countries, including the U.S., which have laws to avoid discrimination when
hiring workers. Many others do not have such legislation or, if they do, it is
not enforced. A non-discriminatory policy in hiring may not seem to be
particularly impressive to those who work in countries with non-discrimination
laws, because their workplaces are in principle obligated to respect such laws.
One difference is that Mondragon has voluntarily adopted a non-discrimination
policy to promote social justice. But even more meaningfully, Mondragon has
added one element of non-discrimination, which reaches beyond providing access
to work.
In Mondragon, along
with non-discrimination due to religious or political affiliation, race, gender
or age, the Open Admission principle includes non-discrimination due to
socioeconomic level. This type of non-discrimination may be perceived as
unnecessary by some who work in Western countries because of the assumption
that "equal opportunities" are afforded in their societies to
potential job seekers. This assumption is, of course, debatable since poverty
and lack of access to social and political milieus prevents many individuals
from having such "equal opportunities."
At Mondragon, the
policy of non-discrimination intends to aid those job applicants who have a
socio-economic disadvantage, for whatever reason, with a bank loan to pay the
initial investment. Thus, if a potential worker-owner, after a one-year trial
period, is willing and capable of carrying out an available job but has no
economic means to contribute the original capital contribution to buy one
share, the Mondragon bank (Caja Laboral) will loan him/her the corresponding
amount. This amount can be paid back through monthly installments for three
years. This provision does not only promote economic justice but recognizes the
dignity of all human beings, created equal in the image of God [Laborem
exercens, 4]. It also emphasizes the primacy of human work over capital by
considering a human person's capacity to do work as more important than the
ability to pay the initial capital investment.
No Lay-Off Policy
One of the most
essential tenets of economic justice, according to Catholic social thought, is
the right to work. Laborem Exercens states that human persons have a right to
work and that "the 'poor' appear ... as a result of the violation of the
dignity of human work: either because the opportunities for human work are
limited as a result of the scourge of unemployment or because a low value is
put on work and the rights that flow from it, especially the right to a just
wage and to the personal security of the worker and his or her family"
[14:37]. In addition, "unemployment almost always wounds its victim's
dignity and threatens the equilibrium of his life. Besides the harm done to him
personally, it entails many risks for his family [4: No.2433]. The right to
work, however, has become practically non-existent in traditional organizations
as, in the insatiable quest to improve profitability, eliminating human work
has become the first line of attack for cost reduction. (5)
At Mondragon, a job is
sacred and protecting a worker-owner from losing it is vigorously pursued.
Mondragon promotes economic justice and solidarity through the principle of
Intercooperation, which includes a no-layoff policy. As a consequence, no
worker-owner has ever been fired in Mondragon. Worker-owners are protected from
market fluctuations by arranging transfers to other cooperatives if they are
displaced due to market-related causes. Mondragon has a mechanism to track,
re-train and relocate these displaced worker-owners, who maintain their pay
level if they take a new job that pays lower wages. Also, temporarily displaced
workers maintain 80% of their last wage until they are relocated.
In addition, workers
who need to be relocated due to personal or performance-related reasons are able
to do so, after a process of evaluation. That is, at Mondragon it is assumed
that an able and willing worker may be ineffective if assigned to a type of
work unsuitable for his or her skills, but that there is work somewhere in the
organization where this worker can perform adequately. In brief, at Mondragon,
"work is 'for man' and not man 'for work'" [Laborem Exercens, 6].
Limited Pay Ratios
Between Top Executives and Factory/Field Workers
The principle of
Payment solidarity proclaims that "sufficient remuneration, while
maintaining solidarity with others, is a basic principle of management"
[18:164]. This principle "gives priority, over any other formulation or
scope of application of the concept, to sharing in the needs of others"
[18:164]. Remuneration maintains, within the parameters of this principle,
proportional ratios with similar local industries and equitable ratios within
Mondragon.
This
principle is one of the most visible examples of solidarity at Mondragon and it
has strong implications for economic justice. At Mondragon, there are
agreed-upon wage ratios between the worker-owners who do executive work and
those who work in the field or factory and earn (in theory) a minimum wage.
These ratios range from 3:1 to 9:1 in different cooperatives and average 5:1.
That is, the general manager of an average Mondragon cooperative earns 5 times
as much as the theoretical minimum wage paid in his/her cooperative. This ratio
is in reality smaller because there are few Mondragon worker-owners that earn
minimum wages, their jobs being somewhat specialized and classified at higher
wage levels. In addition, the ratios are further diminished because Spain uses
a progressive tax rate, so those with higher wages pay higher taxes.
It should be noted that, although the ratio for each cooperative
varies, it is worker-owners within that cooperative who decide through a
democratic vote what these ratios should be. Thus, if a general manager of a
cooperative has a ratio of 9:1, it is because its worker-owners decided it was
a fair ratio to maintain, considering wages in comparable jobs in other similar
local companies and acknowledging the complexity, scope or technological
expertise corresponding to that job.
In general, wages at Mondragon, as compared to similar jobs in
local industries, are 30% or less at the management levels and equivalent at
the middle management, technical and professional levels. As a result,
Mondragon worker-owners at the lower wage levels earn an average of 13% higher
wages than workers in similar businesses.
The principle of Payment Solidarity is based on economic justice
and the dignity of work. Ormaechea states that
amongst the motives which inspired the [Mondragon] experience ...
was the reduction of the gap in the enjoyment of wealth generated
by work. The payment differential in [traditional] companies was
enormous and discriminatory and ... salaries were insufficient at
lower levels, with the result that workers had to live in want
[18:164].
Many observers who work in traditional organizations are often
perplexed by the acceptance of Mondragon managers of lower remuneration when
there are opportunities to earn more elsewhere. This is because Mondragon
worker-owners perceive work not as a commodity to be bought and sold based on
market supply and demand, and therefore market forces are not the main
determinant of remuneration levels.
Instead, Mondragon managers bestow much more importance to the
pursuit of economic justice than to the accumulation of monetary resources,
which may prevent people with lower wages from improving their standard of
living. Although worker-owners at all levels agree that some differential in
remuneration is justified among jobs, the wage gap among them is limited
because they believe in the dignity of work. That is, it is recognized that the
work performed by all worker-owners is worthy of dignity, and they are all
interdependent--the machine operator needs the general manager as much as a
general manager needs the machine operator. In brief, in contrast with
traditional organizations in which the differentials in remuneration may reach
400:1 or more, at Mondragon the wage ratios are kept at levels in accordance
with economic justice, dignity is maintained for the people who earn less, and
their work is valued.
Mondragon Principles That Promote the Dignity of Human Persons
and Their Work
According to Catholic social thought, promoting economic justice
is not enough if the dignity of human persons and their work are not respected.
"Economic life is not meant solely to multiply goods produced and increase
profit or power; it is ordered first of all to the service of persons, of the
whole man, and of the entire human community [4: No.2426]. And, as stated by
Lebacqz [15:69]:
The dignity of persons requires not only treating them justly in
determination of wages, but also according them their full measure
of total human rights. An economic system that produces large
quantities of goods and distributes them fairly will nonetheless be
"unjust" if its organization and structure are such "that the
dignity of workers is compromised, or their sense of responsibility
is weakened, or their freedom of action is removed" [Mater et
Magistra, No. 83].
Arizmendiarrieta, addressing the dignity of human persons,
wrote: "If we have learned anything in life it is that the primary factor
in everything is the human being, as well as his or her quality and
spirit" [2:26]. And, about the dignity of human labor: "Work is the
attribute that gives a person the highest honor of being a cooperator of God in
the transformation and fertilization of nature and in the resulting promotion
of human well-being ..." [2:116]. Arizmendiarrieta also had a high respect
for human work and its primacy over capital. He wrote: "Is work not a more
noble, ancient and human element than capital, and, as such, worthy of a
greater esteem? Could the aspiration to the primacy of work be considered an
unjustifiable ambition?" [2:118]. And also: "Work is not God's
punishment but instead proof of the trust God gives humans by making them
fellow collaborators" [2:113].
There are two
Mondragon principles that advocate the dignity of human persons and their work.
These are The Sovereignty of Labor over Capital and The Instrumental and
Subordinate Character of Capital. At Mondragon, worker-owners are the
protagonists of work and capital is a tool to achieve work. "Labor is the
principal factor for transforming nature, society and human beings themselves
..." [18:148]...." Capital [is] to be an instrument, subordinate to
Labour, necessary for business development ..." [18:153]. These principles
state unequivocally that at Mondragon capital is a means, an object, to
accomplish work and that human persons are the subjects of work.
Nevertheless, although
subordinated to labor, it is acknowledged that capital is necessary to
accomplish work. As stated by Ormaechea, capital is "worthy of
remuneration" which is: "just, in relation to the efforts implied in
accumulating capital; adequate, to enable necessary resources to be provided;
limited in its amounts, by means of corresponding controls; and not directly
linked to profits made" [18:153].
Furthermore, in
addition to the primacy of labor over capital, the principle of Democratic
Organization places labor and capital in "right relationship" because
it "overcomes the opposition between labor and capital" [Laborem
exercens, 12] by owners being workers, and workers being owners. (6) Labor and
capital cannot naturally be opposed because it is human labor that has produced
the advances in technology and science through the ages and it is accumulated
human labor that has produced capital (Ibid.), so labor and capital are
intimately related, the latter being a fruit of the former.
The Essential Role of
Solidarity in Pursuing Justice in Mondragon
Along with democracy
and participation in decision-making, solidarity provides a strong foundation
for economic and social justice at Mondragon. Solidarity is not described as
one of the 10 Mondragon principles mentioned in the Appendix, because it
underlies them all. Solidarity, as understood in Mondragon, reaches beyond
worker solidarity as a means to avoid the exploitation of workers [Laborem
exercens, 22]. Instead, writes Arizmendiarrieta, "[t]he test of an
authentic feeling of solidarity is precisely that through which each one
contributes to the common needs ..." [2:137]. This is in accordance with
Pope John Paul II's statement:
[A] new solidarity deal ... is not
impossible ... Business leaders
should make their needs for increased
capital and profits
compatible with requirements of social
justice and a working
community respectful to its members'
personalities and
creativities.... [E]veryone should be
persuaded that a nation, as a
community of people, must be built upon
sound ethical and moral
foundations, and that each and every
member must feel responsible
for the welfare of all [cited in 22:356].
Arizmendiarrieta
understood the paramount importance of solidarity in cooperatives and wrote
extensively about it. As related to work: "Those who with a conscience of
solidarity have accepted their own integration into a cooperative and know that
effective solidarity exists to the extent that each one can yield some of what
is theirs in honor of the common good" [2:137]. About the relationship
with others: "Being in solidarity is accepting others, not only as they
are, but also as they could be; tolerating their limitations and defects, but
not renouncing to the impulse of welcoming them to overcome them with our
service ..." [2:134]. And, as a transforming agent of society: "For
me, solidarity is the key, even the atomic secret that will revolutionize all
social life. Collaboration of class, collaboration of theory and spirit, and
the collaboration of the people with their authorities and of the authorities
with their people, is the secret of the true social life and the key to social
peace" [2:132].
As expressed by
Ormaechea: "A constant in cooperativism, both theoretical and practical,
is solidarity"
[18:164]. In his words, Mondragon was founded on
the firm conviction
that solidarity is the best way to insure that
all workers can live
with dignity and justice; the struggle to
refrain the
hedonistic impulse to think only about oneself ...; the
pursuit and
satisfaction of common interests and needs; and the
imagination to
conceive new forms to manage social processes to
make justice possible
[18:15].
Solidarity Within
Mondragon, With the Immediate Communities and Beyond
The
agreement to organize as individual members of cooperatives and as a group of
interdependent collaborative organizations to form the Mondragon Corporacion
Cooperativa is in itself a strong statement of solidarity. Cooperative work
requires mutual care and help, working closely and sharing with each other,
participating, compromising, negotiating and often accepting decisions contrary
to one's wishes. Furthermore, solidarity at Mondragon encompasses not only
close collaboration among worker-owners, but social responsibility with the
immediate communities, and aid to less-advantaged communities elsewhere,
reflecting the spirit of solidarity that reaches beyond one's area of interest
to serve humanity, just as described in Catholic social thought. Some examples
of solidarity at Mondragon follow.
Maintaining Stable Income Levels
The no lay-off policy, the willingness to retrain and absorb
displaced workers among cooperatives, and the limited pay ratios between top
executives and factory/field workers mentioned earlier foster not only economic
justice but also solidarity within Mondragon. A related policy is the
maintenance of stable income levels. This is included under the principle of
Intercooperation as "the pooling of profits" among five to seven
cooperatives which are grouped in "clusters" [18:169]. This policy
protects worker-owners from excessive profit sharing income variations, which
are common due to temporary market fluctuations. In the rare event that a
cooperative has several consecutive years of low profits, however, an
evaluation is made to assess its continued viability.
Creating Jobs: Mondragon's Priority in Solidarity With the
Immediate Community
The most evident demonstration of solidarity of Mondragon
worker-members is contained in the principle of Social Transformation. Pursuing
social and economic justice as well as solidarity with the community, Mondragon
endeavors first and foremost to create jobs. In fact, the creation of
employment is one of the main stated objectives of Mondragon. Ormaechea states
that worker-owners agree that Mondragon is "to [manifest] its will to
extend the options for work to all members of society" [18:148]. Actually,
Mondragon reaches beyond the responsibility of a direct employer, as described
by Laborem Exercens, which distinguishes between the responsibilities of the
direct and indirect employers. The direct employer contracts work directly with
each worker, and the indirect employer, which is usually the government,
influences the labor relationship and is responsible for "establishing an
ethically correct labor policy, [through which] the objective rights of the
workers are fully respected" [14:17]. Therefore, it is the responsibility
of the indirect employer to act against unemployment and, if employment is not
provided, the indirect employer has the obligation to provide unemployment
benefits. Mondragon is primarily a direct employer, but, by creating and
protecting workers and their jobs, it also performs the task assigned by
Laborem Exercens to the indirect employer. Mondragon not only assertively
creates and preserves employment, but it also, as previously mentioned,
protects temporarily displaced workers through a fund that pays 80% of their
income until they are retrained and relocated.
Furthermore, the financing scheme to create jobs shows the
commitment of Mondragon worker-owners, who agree to reduce their personal
profit sharing in order to create more jobs. Furthermore, worker-members also
agree to postpone the use of the remaining personal share of profits to finance
the creation of more jobs. That is, worker-owners in cooperative enterprises in
Spain by law may receive up to 70% of the profits; they must deposit 20% in a
cooperative reserve fund, and contribute 10% of their profits to the community.
At Mondragon, worker-owners have collectively decided to reduce the profits
that they may receive to 45%, have increased the deposit in the cooperative
reserve fund to 45%, and have maintained their contribution of 10% of the
profits to the community. Also by worker-owners' agreement, the 45% of funds
that they are entitled to receive are deposited in a personal bank account and
the use of these funds is postponed until retirement. This decision provides
Mondragon with 90% of the profits (45% from the deposits of worker-owners on
personal bank accounts plus 45% of the reserve fund) to finance growth and thus
job creation.
This financial scheme, again the result of a collective decision
of worker-owners, demonstrates their strong belief in pursuing the common good.
Mondragon is a profitable organization and its worker-owners could elect to
accumulate capital, as investors would in traditional organizations. Instead,
Mondragon worker-owners make most of their profits available to the Caja
Laboral bank "on the understanding that this socializes profits,
strengthens the company technologically and accumulates the financial means to
enable the development of new activities and jobs" [18:151]. As a result
of the pursuit to create cooperative jobs, Mondragon has grown from 28,000 in
1995 to 60,000 worker-owners at the end of 2001, an increase of more than 100%.
The
question occasionally arises about the allocation of 90% to creating jobs while
maintaining the 10% share for community projects. This reflects the strong preference
of Mondragon worker-owners for justice over charity. Potential workers, who get
jobs at Mondragon, gain dignity as persons and in their work and participate in
economic justice because they receive fair pay and are able to support their
families and themselves. In addition, they enjoy social justice because they
are able to participate in making decisions that affect them directly, and have
the opportunity to grow as persons and as social beings because they become
part of a successful social group. They can then contribute to the community as
Mondragon worker-owners.
Mundukide, an Organization in Solidarity Beyond the Immediate
Communities
In 1999, Mondragon formed Mundukide Fundazioa, a foundation that
reaches beyond the immediate communities of Mondragon. This is in accordance
with the principle of Universal Nature. According to Ormaechea,
Arizmendiarrieta once said: "we should be concerned with those who form
the legion of labour and who hope to progress and transform profoundly their
structures. A whole economic world for those who need the force that we can
offer in economic and financial plans" [18:181]. Accordingly, the
following expresses the purpose of Mundukide:
[Ours] is an attempt to respond in a responsible way to our duty of
solidarity with those that need it. It is an effort to adapt to our
times so that not only in markets and production but also in
equity, solidarity and justice we find ways to collaborate with
people who are distant and different but who are our neighbors in
this global world [13:35].
According to Jokin Esnal, President of Mundikide, its objectives
are integral provincial development, intercooperation in developing countries,
and sharing of community experiences [8]. A current integral provincial
development project is being carried out in Niassa, north of Mozambique, where
a poor but willing local population is being helped to create basic
infrastructure and jobs by forming microenterprises, building roads, schools,
health centers and agricultural cooperatives. The project includes two
initiatives: the improvement of education, health, nutrition and potable water,
and the generation of funds through the promotion of cooperative enterprises
[7]. A worker-owner from the FAGOR cooperative has committed to train a team of
local managers for two years [21]. MALE YERU (our money), a credit institution
to finance microenterprises, has given a financial contribution from Mundukide
of $300,000 U.S. dollars. A mobile office and two branch offices have been
created, and a personnel training program has already been established [1].
A project of intercooperation in San Clemente, Colombia consists
of Mundukide providing management training and operational guidelines to a
local group of promoters that is creating a cooperative group. This project
consists of a distribution center for local agricultural products, to be
followed by the creation of agro industrial enterprises and organic
fertilizers. The distribution center of San Clemente has already been established
to commercialize agricultural products from 1,700 small local producers
[17:37].
Sharing community experiences was initiated in 1999 with a group
of nine community leaders of six Latin American countries, coupled with visits
of 18 Mondragon University students who completed special projects in these
countries. This activity has continued, and the third annual session with
cooperativists from Africa and Latin America took place in Mondragon during
2002.
Conclusion
In summary, it is because Mondragon is worker-owned, and its
worker-owners are empowered to institutionalize their decisions through
democratic participation, that Mondragon can be said to be an organization,
instead of a mere group of individuals, that responds to the
"calling" to promote Catholic social thought at the workplace. This
paper illustrates that Mondragon worker-owners live and work according to
principles, policies and practices that promote social and economic justice and
the dignity of human persons and their work, grounded in solidarity with each
other, the community and the world at large.
Mondragon is of course not a perfect organization, and, as it
continues to expand in global markets, it faces numerous challenges to maintain
its commitment to its basic principles. Yet, Mondragon history demonstrates
that worker-owners have been able to adapt to major changes in the past while
maintaining their basic principles intact, and they will undoubtedly overcome
new challenges successfully in the future. I make this statement confidently
because it has been evident to me, after sharing numerous experiences with
Mondragon friends for the last eight years, that the spirit, belief in
themselves and their principles, democratic decision-making, and the
unshakeable solidarity of the Mondragon people are their major strengths.
Appendix
Ten Basic Principles of Mondragon
(Ormaechea, J. M. The Mondragon Cooperative Experience.
Mondragon, Espana: Lit Danona, S. Coop, 1993.)
The Mondragon organization is grounded on 10 basic principles
that balance individual, organizational and community needs:
1. Open Admission
Mondragon is open to all persons who are capable of carrying out
the available jobs. There is no discrimination based on religious or political
grounds, nor due to race, gender, age, or socio-economic levels. The only
requirement is the acceptance of these Basic Principles.
2. Democratic Organization
Workers are owners, and owners are workers. Each cooperative is
managed by a system of "one person-one vote."
3. Sovereignty of Employee's Work Over Capital
Workers join Mondragon and become owners after making a capital
contribution at the end of a trial period. All workers are entitled to an
equitable distribution of profits. The return on saved or invested capital is
just but limited, and it is not tied up to the surpluses or losses of the
cooperatives.
4. Subordinate Character of Capital
Capital is a means to an end, not an end in itself. Available
capital is used primarily to create more jobs.
5. Participatory Management
Worker-owners participate in decision-making and the management
of the cooperatives. This implies development of self-management skills. Formal
education and adequate information is provided to improve worker-owners'
ability to participate competently in decision-making.
6. Payment Solidarity
Remuneration is regulated internally and externally. Internally,
an agreed differential between the highest and lowest paid job is applied.
Externally, a remuneration level is maintained in relationship with similar
local industries.
7. Intercooperation
Cooperatives form Groups to pool profits, to absorb worker-owner
transfers when necessary, and to attain synergies. These Groups associate with
each other to support corporate institutions. Mondragon associates with other
Basque cooperative organizations to promote the cooperative model.
8. Social Transformation
Mondragon cooperatives invest a majority of their profits in the
creation of new jobs. Funds are also used in community projects and in institutions
that promote the Basque culture and language.
9. Universal Nature
Mondragon proclaims its solidarity with other cooperative
movements, with those working for economic democracy and with those who
champion the objectives of peace, justice and human dignity. Mondragon
proclaims its solidarity especially with people in developing countries.
10. Education
Mondragon cooperatives commit the required human and economic
resources to basic, professional and cooperative education in order to have
worker-owners capable of applying all basic principles mentioned above.
Endnotes
(1) An often expanded version of the text about Mondragon's
principles and practices in this paper has been previously published, in the
chapter I wrote in Work as key to the social question [10].
(2) Arizmendiarrieta's journal excerpts have been published in a
book called Pensamientos (1994), which has been translated to the English
language as Reflections (2000). Although various authors have written about
Arizmendiarrieta, I am using his original writings as the main source of his
social thought in this paper.
(3) Several books about Mondragon have been written by its
founders. The Mondragon cooperative experience, written by Jose Maria Ormaechea
(sometimes spelled as Ormaetxea, in other books he wrote) in 1993, addresses in
some detail the original thoughts behind the 10 principles of Mondragon.
Therefore, I have relied heavily on this source.
(4) Participation in decision-making has been in effect in
Mondragon from its creation in 1956, evolving from worker-owners' vote
corresponding to their job levels in 1956 to a one-member/one-vote in 1971 [9].
(5) For a further explanation about the negative consequences of
the violation of the right to work, see David Herrera's chapter "Laborem
exercens, 'traditional organizations' and the democratic Mondragon model"
in [10:238-242].
(6) Mondragon prefers not to hire or to contract salaried
workers. This is because worker-owners prefer relationships of equality through
ownership, and consider hiring workers for a salary as a source of inequality
between the person doing the hiring and the person being hired. Therefore,
Mondragon intends to have no more than 10% of its total number of workers as
contracted salaried workers, to absorb temporary fluctuations in market cycles.
Maintaining this level of salaried workers with no ownership, however, has
become a challenge because recent growth has continued to accelerate,
increasingly through acquisitions of non-cooperative organizations. Practically
all of these new ventures have eventually become cooperatives, but Mondragon
has a policy of allowing the corresponding workers to decide if they want to
become part of the cooperative system after being exposed to it, and this
process takes a few years. In addition, new operations outside of Spain, a
relatively small but rapidly growing percentage of the total operations, have
been slow in adopting the cooperative system.
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David Herrera,
University of San Diego
COPYRIGHT 2004 St. John's University, College of Business
Administration
COPYRIGHT 2008 Gale, Cengage Learning
Review of Business
Articles in Wntr, 2004 issue of Review of Business
by Charles M.A. Clark
by Charles M.A. Clark
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by Jim Wishloff
by Gary L. Chamberlain
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by Phillip M. Thompson
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