Case Analysis: Mondragón

Jia Tu

Mondragón is one of the most successful examples in cooperative. MondragónCooperatives was first started in 1956 in the Basque region of Spain. The founders of this cooperative gave authority to the workers to choose their governing bodies (Whyte, 1999)[i]. The workers were the suppliers of Fagor. In the next 40 years, Mondragón Cooperatives had grown to 99 industrial or agro-industrial and service cooperatives closely linked with a cooperative bank, a research and development cooperative, and educational cooperatives. (Whyte, 1995)[ii]In spite of their huge success, even the Mondragón cooperatives’ staunchest defenders have been compelled to admit that their status as a model has significantly diminished in the past 2 decades as a result of the expansion in the network of elements incompatible with the cooperative ethos. (Encyclopedia, 2007)[iii]

 

The multiplicity of objectives

Battling with the recession, owners have to reduce spending by lay-off workers and wage cuts. In Fagor’s case, the advantages of cooperative model are that lay-off, short hours, and wage cuts can be achieved without strikes, and agreements can be reached faster than in conventional companies (Munoz, 2009)[iv]. Workers voluntarily give up their annual dividend on their individual stakes in the company. Those who are lay-off must be re-employed within a certain miles of radius. These solutions are mutually reinforced, and try to diminish the loss of both workers and the cooperation.

 

In the Mondragon model, the workers, who are also the owners, make decisions by themselves. Different workers or members have different objectives. In nature, those objectives are often short-term and money-based, the workers who share the control of corporate will meet varying degrees of difficulties in the slow and long decision-making process.

 

First, the long discussions and debates among all the members might be inefficient. This might lead to the fact that some workers or members will try to influence the voting results though every decision must be proved to fit into the mission of the corporation. Second, the majority makes the decisions because the agreements are reached by voting. There is a possibility that the decisions the majority made are not the best for the cooperation or sustainable. The decisions preferred by the larger coalition are more likely to be made. In order to protect their own benefits, problems like bribery and monopoly might occur.

 

Another problem in cooperatives is the conflict of objectives among workers how to evaluate their contribution to the cooperatives that they make individually. The most productive workers or members have to cover the loss of other members. If the minority of workers causes the loss, and they are covered by the majority workers, the conflicts might not be obvious. However, if only a few workers or members are productive, and they have to cover all the loss cost by other members, the conflicts might be more serious. The most productive members might become less productive to match the contribution of other members in the cooperatives. Or they might want to leave the cooperative. In Munoz’s case, Iriza had to split off from the Fagor because they did not want to support the other loss-making members (Munoz, 2009).

 

Dow argued in his paper that the solution of this problem is the workers delegate the daily management of the organization to managers. “In a conventional capital-controlled firm, the board of directors is appointed by the investors are entitled to the surplus. Whereas, in a workers’ cooperative, the surplus is shared, and the managers, which are the equivalent body to the board of directors, are elected by workers.” (Dow, 2001)[v] However, when the workers select those managers who have the decision-making rights will have the control of the cooperative and making decisions that are not maximizing the interests of the workers just as the conventional companies. What’s more, in Munoz’s case, though the salary of managers was raised to eight times, it is still 30% below the market rates (Munoz, 2009). Because the gap of the salaries, the increase power of managers will impose their own interest, and this will aggravate the conflict among workers.

 

Social Mission

The conception of democracy in Mondragón cooperative encompasses aspects deriving from the idea “people in power”, by which organizational democracy is conceived as “one worker one vote regardless of the share of the capital owned.”(Francisco, 2005)[vi] However, as mentioned in Munoz’s case, Mondragón has two types of employees, one is member employee and the other is non-member employee. In fact, Mondragóncooperative had adapted different business models within and outside the cooperative in the expansion of globalize market. Within the cooperative, there are members, temporary members, and temporary non-members. Outside the cooperative, employees work on contract, such as foreign affiliated companies. (Errasti A.M, 2003)[vii] The outside cooperative business model is the same as the conventional companies. In the competitive global market, the old business model is challenged, while the adaptation of the market are also changing the conception of democracy. It seems that Mondragón cooperative have to develop new models to survive in the competitive global market, but also maintain its democracy.

 

Conclusion

In conclusion, the multiplicity of objectives is challenging the Mondragóninside the cooperative while the competitive global market is challenging Mondragón’s social mission and its core value. Though Mondragón was a successful in the past, it has to develop new models to survive.

 

References:


[i] Whyte, W.F. 1999. The Mondragón cooperatives in 1976 and 1998.Industrial and Labor Relations Review, 52 (3): 478–481.

[ii] Whyte, William Foote. 1995. Learning from the Mondragon cooperative experience. Studies in Comparative International Development; Summer95, Vol. 30 Issue 2, p58, 10p

[iii]Mondragón Cooperatives, Encyclopedia of Activism and Social Justice, 2007, ISBN 141291812X, Volume 2, pp. 967 – 969

[iv] Munoz, Claudio. (2009, March 26).  All in This Together: How is the Cooperative Model Coping with the Recession? The Economist.

[v]Dow, G.K. 2001. Allocating control over firms: Stock markets versus membership markets. Review of Industrial Organization,18 (2): 201–218.

[vi] Francisco Javier Forcadell,Democracy, Cooperation and Business Success: The Case of MondragónCorporaciónCooperativa,Journal of Business Ethics,Vol. 56, No. 3, Feb., 2005

[vii]Errasti A.M; Heras I; Bakaikoa B; Elgoibar P, The Internationalisation of Cooperatives: The Case of the Mondragon Cooperative Corporation, Annals of Public and Cooperative Economics, ISSN 1370-4788, 12/2003, Volume 74, Issue 4, p. 553

Advertisements

One thought on “Case Analysis: Mondragón

  1. tlhill2012 December 16, 2012 at 5:26 PM Reply

    What do you recommend? How might Mondragon navigate these pressures to adjust both its busienss model and democratic system?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: