Cooperatives in the Basque region soften capitalism’s rough edges
If the Erreka Group operated like most businesses, the pandemic would have delivered a traumatic blow to its workers.
Based in the rugged Basque region of Spain, the company produces a variety of goods, including sliding doors, plastic parts used in cars and medical devices sold around the world. As the coronavirus ravaged Europe in late March, the Spanish government ordered the company to shut two of its three local factories, threatening the livelihoods of the 210 workers there.
But the Erreka Group averted layoffs by temporarily trimming wages by 5%. It continued to pay workers stuck at home in exchange for the promise that they would make up some of their hours when better days returned.
This flexible approach was possible because the company is part of a vast collection of cooperative enterprises, centered in the town of Mondragón. Most of its workers are partners, meaning they own the company. Though the 96 cooperatives of the Mondragón Corp. must produce profits to stay in business — as any company does — these businesses have been engineered not to lavish dividends on shareholders or shower stock options on executives, but to preserve paychecks.
The concept of the cooperative may conjure notions of hippie socialism, limiting its value as a model for the global economy, but Mondragón stands out as a genuinely large enterprise. Its cooperatives employ more than 70,000 people in Spain, making it one of the nation’s largest sources of paychecks. They have annual revenues of more than 12 billion euros ($14.5 billion). The group includes one of the country’s largest grocery chains, Eroski, along with a credit union and manufacturers that export their wares around the planet.
“Mondragón is one of the landmarks of the social economy movement because of its scale,” said Amal Chevreau, a policy analyst at the Center for Entrepreneurship at the Organization for Economic Cooperation and Development in Paris. “They show that it’s possible to be profitable but still act on social objectives.”
In a world grappling with the consequences of widening economic inequality, cooperatives are gaining attention as an intriguing potential alternative to the established mode of global capitalism. They emphasize one defining purpose: protecting workers.
The pandemic has highlighted and exacerbated the pitfalls faced by companies built to maximize shareholder returns. The shutdown of much of the world’s economy has sent joblessness soaring, threatening the ability of workers to feed their families and stay current on rent and mortgage payments — especially in the United States. Government rescue packages have emphasized the protection of assets such as stocks and bonds, bolstering investors while leaving workers vulnerable.
Many large businesses have distributed much of their earnings to shareholders in the form of dividends and purchases of their own shares, which lift stock prices. When the pandemic arrived, many lacked the reserves to weather a downturn, prompting managers to furlough and fire workers to cut costs.
Cooperatives have been expressly created to prevent such outcomes. They typically require that managers plow the bulk of their profits back into the company to prevent layoffs in times of duress.
“We have the philosophy of not firing people,” said Antton Tomasena, the Erreka Group’s chief executive. “We wanted people to not have too many worries.”
Yet even as cooperatives are increasingly part of the discussion about how to update capitalism, they remain confined to the margins of commercial life. They are found in Italy and Belgium. In the north of England, the city of Preston has promoted cooperatives as an antidote to a decade of national austerity. A series of cooperatives in Cleveland have been organized by a nonprofit, the Democracy Collaborative.
In Mondragón, the cooperatives trace their origins to the wreckage of the Spanish Civil War in the early 1940s, when a priest, José M. Arizmendiarrieta, arrived in the area bearing unorthodox ideas about economic betterment.
Rich in ore, the Basque Country had long been the scene of industry, especially steelmaking, but most workers were poorly paid. People typically started working when they were 14 and advanced little.
When the priest approached the owner of a private vocational school to see about opening it to everyone, he was rebuffed. So he started his own, today known as Mondragon University.
The priest viewed cooperative principles as the key to lifting living standards. In 1955, he persuaded five of the first graduates of the local engineering program to buy a company that made heaters and run it as a cooperative.
Over the decades, scores of other cooperatives took root, dominating the town’s economy.
Each business is autonomous, but they operate under shared principles, especially the understanding that if someone loses a job at one cooperative, he or she has the right to take a position at one of the others. If there is no job, workers are entitled to job training plus unemployment benefits lasting up to two years.
In the United States, the chief executives of the largest 350 companies are paid about 320 times as much as the typical worker, according to the Economic Policy Institute in Washington. At Mondragón, salaries for executives are capped at six times the lowest wage.
The lowest tier is now 16,000 euros a year (about $19,400), which is higher than Spain’s minimum wage. Most people earn at least double that, plus they receive private health care benefits, annual profit-sharing and pensions.
Every cooperative pays into a collective pool of money that covers unemployment benefits and aid to member cooperatives that are struggling. When a crisis requires limiting production, workers continue to get paid as normal, while accruing balances of working time owed that management can assign later.
During the spring, as many of Mondragón’s customers had to shut their factories because of the pandemic, orders for parts plunged. Production at Mondragón factories plunged to 25% capacity. The cooperatives responded with the 5% cut in pay. No one was happy about it, but opposition was limited.
Since then, nearly all the cooperatives are back to nearly full capacity, as workers pay back the hours for which they were compensated when factories were shut down. Overall, the cooperatives expect to be profitable for the year.
Mondragón cites its pandemic performance as evidence of its nimbleness, as well as the operational advantages of trust flowing from a sense of shared purpose.
“When you explain the situation very clearly, and when people know that they are the owners of the business, you are able to do these kinds of efforts,” said Iñigo Ucín, president of the Mondragón Corp.