← Autodidact Archive · Original Dissent · Walter Yannis
Thread ID: 6298 | Posts: 4 | Started: 2003-04-23
2003-04-23 18:39 | User Profile
The subject of alternatives to capitalism and socialism was raised on another thread, which sparked an interesting discussion of Catholic social teaching and Distributism.
Here is an article describing the most successful implementation of these ideas that I know of, the Mondragon enterprises in Spain.
The article is [url=http://www.ping.be/jvwit/Mondragon.html]here [/url] although I do not vouch for its accuracy in every respect. I first learned about Mondragon in my studies of corporate law. I am unaware of anything like this in the States.
Walter
In order to move beyond capitalism, solutions for several problems have to be found. Mondragon is important because it offers viable and workable solutions for some (but not all) of these problems. I want to study the experiences by the Mondragon cooperatives more closely, but here are some preliminary data, and references that I could locate so far.
Ownership of means of production.
Means of productions should be owned by those who use them to work. Both capitalism and communism fail in this respect. Under capitalism, means of production are owned by shareholders. Often, these shareholders have no knowledge of the production process. They are not interested in production, but in profit and gain. Under communism, means of production are owned by the 'community'. In practice, this means that state bureaucracy and party bosses are steering production. Both under capitalism and under communism, economical processes are directed by people that lack the capacity and the knowledge to do so - although practice has shown that communism is more problematic still than capitalism.
Nobody owns stock in any Mondragon cooperative. A cooperative is financed by members' contributions. Every member, when entering the cooperative, lends a substantial amount of money to the enterprise. The amount of this loan is fixed every year by the 'governing council' (junta rectora). It corresponds to about the lowest annual salary. Candidates that do not have the cash, can borrow it from the cooperative; their salary during the first three years of membership is diminished by about one third.
The contribution of the new member is allocated to the new owner-employee's internal capital account (ICA). The ICA is created when the member enters the cooperative, and it is closed when he/she leaves it. Everybody having an ICA has one vote at the General Assembly.
About fifty percent of the profits is also allocated to every members ICA. Every year, the member receives 6 percent interest on his or her ICA. When a member leaves the firm, mostly at retirement, he/she receives the capital on his or her ICA. The ICA is closed and the right to vote is cancelled. At the age of retirement, the amount saved on the ICA can be considerable. By 1995, a representative member of a Mondragon co-op had an ICA balance of about $70.000 (Lutz 1997); older members have considerably more.
It is important to note that the principle 'one person- one vote' is strictly applied. Those with more money on their ICA do not have increased voting rights.
This means that a new kind of 'ownership' is created. The owner-employee's of Mondragon cannot sell their property; they can only transfer it. Those who are members gradually elect and coopt their successors.
I am inclined to believe that this system is basically sound and offers a viable alternative for capitalistic (stock) ownership. There is an important caveat, however. Kasmir notes that cooperative workers do not consider the firms theirs in any meaningful way (p.197). As a matter of fact, one cannot even speak of ownership proper in the case of Mondragon, because there is no stock that can be sold. The very concept of 'ownership' loses much of its usual meaning. Therefore, I believe that the question of 'ownership feeling' is not very important. What is important, is the feeling of self-determination by the workers. Clearly, the Mondragon cooperatives are very succesful in motivating managers. Probably, this is caused by the fact that managers are not subordinated to stockholders outside the firm. But in order to remain competitive within a capitalistic economy, managers are pressed to introduce methods and measures that hurt the sense of self-determination of blue collar workers. Although the Mondragon type of 'ownership' constitutes a crucial step forwards, it does not automatically induce self-determination and intrinsic motivation on the shopfloor.
Democracy and Work
A second problem to be solved is that of democracy on the workfloor.
"The participatory role of the rank-and-file co-op member is essentially constrained to their electing every year two members to the Governing Council. They do so by majority vote in the General Assembly which ordinarily convenes once a year. Besides voting two of the six electable members of the Governing Council for a three-year staggered term, the General Assembly also has to decide to accept the annual business report and vote on some basic matters like the internal rate of interest to be charged on equity accounts and the level of threshold payments for new members" (Lutz 1997, p.1410).
The Governing Council has nine members and appoints the management proper for a period of 4 years.
This structure strongly ressembles that of a classic representative democracy, with the voting at the general Assembly corresponding to a general election, the Governing Council playing the role of the parliament, and the management functioning as a kind of government. After their appointment, the management has large autonomy. There are two advisory councils: the Management Council and the Social Council. But as long as the management operates within the initial guidelines, they remain independent (although, of course, they are at risk of missing their reappointment when the four-year term is over).
Nevertheless, there are also direct-democratic decision channels.
Workers, just as managers, can demand a meeting of the General Assembly. In order to reach this goal, they have to collect signatures, just as for a legilative initiative. When one third of the workers demand it, the General Assembly of the cooperative is convoked.
Although it has only an advisory role, the Social Council can also convoke a general Assembly. I believe that the democratic structures in the Mondragon co-ops are basically sound. It should be remembered, however, that democratic structures are necessary, but not sufficient for real democracy to evolve. Click here for Problems with democracy at Mondragon.
Income levels
Salaries, called anticipios, "..are based on job ratings. Ratings are numerical rakings given to each job depending upon skill level, responsibility, and such personal attributes of the worker as seniority and pace of work. Job ratings increase by increments of .05, from a low of 1.0 to a high of 3.0. These indexes are then converted into a pay scale in which the highest-paid director earns 4.5 times the salary of the lowest-paid production worker. Such a slim difference between the earnings of workers and managers is considered one of the most egalitarian attributes of the system.
In 1900, while I was living in Mondragon, a delegation from the Soviet Union toured the cooperatives. A daily nespaper reported that delegation members were impressed with the system, but they thought that the 1:4.5 margin should be increased. This struck a nerve among cooperators, for the pay differential was one of the most fiercely contested issues between managers and workers. Two years earlier, the Caja Laboral Popular voted to increase its job index to 1:6. This vote affected only the bank; nonetheless it set a powerful example. In 1989, Fagor management called a meeting to propose a widening of the salary spread there. Workers organized against the management proposal and defeated it before it was taken to a vote. Managers argue that they are not sufficiently remunerated for their work. A study by the Caja Laboral Popular (1988) showed that the highest-level engineers in production co-ops, to pick one example, earn 30 percent less than comparably skilled engineers in private firms in the province of Gipuzkoa (...) Workers in Mondragon (...) continue to view the 1:4.5 salary ratio as a central democratic feature of the system" (Kasmir 1996, p.35).
In my view, the salary spread is an issue that should be decided at a larger scale than the single firm or cooperative. It should be decided by law, and given the importance of the issue, the decision is best made along direct-democratic lines. This is necessary in order to eliminate the labour market. As long as the cooperative is an egalitarian island in a capitalistic sea, external pressure on a narrow salary spread will continue.
As a matter of fact, I consider a 1:4.5 spread to be unacceptably broad. In the absence of labour market mechanisms, I believe that it would be narrowed very substantially. When the spread would be under direct democratic control of society as a whole, factors such as the monotonous nature of many blue collar jobs would be translated in higher rating, whereas the agreeable character of more intellectual jobs would lead to lowering the ratings for intellectual and managerial jobs.
In 1990 and 1991, proposals were mada in the General Assembly of the social security cooperative and in the Fagor group to widen the pay margin to 1/9 and 1/10. These proposals were defeated by the workers. In 1992, a group was formed in the cooperatives that was linked to a syndicate. In 1992, a recommandation from the Third Cooperative Congress, to widen the salary ratio to 1/7 or 1/8 in the near future, and to still wider margin later, was again defeated (Kasmir 1996, p.190). Mondragon offers an interesting example of how the labor market tends to impose income spreads that hurt feelings of justice in most people.
Eliminating economic competition
Economic competition can be replaced by economic association within the cooperative complex. But the cooperations have to compete with capitalistic firms, and to do so succesfully, they are pressed to introduce stressful working conditions, lowering wages and so on. This how Lutz (1997) sees it:
"..what is really crucially important is the simple conclusion that we now have a living and prosperous example of an alternative to the capitalistic absentee-owned corporation. Economic democracy can indeed be made to work on a rather massive scale, and no capitalist corporation seems capable of really threatening its succes in the marketplace. This is the lesson from Mondragon. At the same time, it must be remebered that this new structure of an enterprise is not a panacea for the solution of all economic problems. As long as we have an international and global economy with low wage producers in China and elsewhere, it is doubtful that even the best organized and most efficient co-op can remain competitive in the long run. It is too early to assess the Mondragon response to this challenge, but in theory there seems only one practical option that does not undermine the ethical principles on which everything is built: to create co-operative firms abroad that would be associated with the Mondragon group. In so doing, the new economics of industrial co-operatives could spread around the globe in an even more impressive manner. Time will tell whether this path is or even can be chosen".
Preponderance of labour over capital
Here are some enthusiastic comments by Mollner (1994):
"Unlike conventional business, which rank their priorities in the order capital-product-managers-employees, Mondragon ranks its priorities in exactly the opposite order: employees-managers-product-capital. People are given the highest priority and 'things' the lowest. People are not fired to increase profits: they are well utilized to increase profits. Keeping and providing additional jobs in the 'relationship economy' is their highest priority".
The Association of Mondragon Cooperatives owns its own bank, the Caja Laboral Popular. This bank uses the money that it collects among the cooperatives and their members to start new cooperatives:
"The association always begins a new enterprise with a group of people who are already friends, never with one individual. It views these natural bonds of friendship as the bedrock upon which the new firm is built. The bank and the founding group agree to stay together until the business is profitable. The members of the founding group put twice the membership fee that others will invest and the bank loans any additional capital at roughly half the initial rate. If more trouble develops, the interest rate drops to zero. If the enterprise encounters still more difficulties, the Bank may donate capital to the business. In other words, the riskier the loan, the lower the interest rate. Eventually, even if it has to switch managers or product line, the business becomes succesful and is able to repay much of the loans, although the bank also uses a portion of its profits from time to time to reduce the size of the loans of all of is cooperative business.
This relationship is not really as unusual as one might think. The bank is simply relating with these new business in the same way any large company relates with a new division that it has created to produce a new product, such as the development of the Macintosh computer within Apple Computer. The only difference is that the bank itself is a division of the only conglomerate called the Mondragon cooperatives and this is its particular task. The circle defining 'we' has simply been extended beyond the corporation to include not only the Bank but the entire community" (Mollner 1994)
"The main focus of the Association of Mondragon Cooperatives is the creation of owner-employee jobs to expand the opportunity for people to participate in the relationship economy. This gives the current owner-employees job security and allows them to be unreservedly enthusiastic about automation. Thus the Mondragon cooperatives tend to be very aggressive in robot development. They recognize that it both eliminates repetitive and dirty jobs and increases productivity, critically important in the international marketplace.
At the same time, the cooperatives view owner-employee job creation as the best service to the comminity at large. Once a person has an owner-employee job in a Mondragon cooperative, best efforts are made to garantee it for life. Thus, the person's family will never be dependent on public assistance but will continually contribute to the needs and development of society. Therefore, every act of each owner-employee every day is experienced as simultaneously providing for oneself and serving society. The for-profit versus non-profit personality split with which we are so familiar in our society is totally absent in the attitude of the Mondragon member. When you walk through a factory, you feel like you are visiting in someone's kitchen or working at a church fund-raising event, and yet the productivity of cooperative members is the highest in Spain. They bring their most mature spirit to the job each day" (Mollner 1994)
An economical system should garantee job security, because this permits intrinsic motivation to become the proper motivation of economic activity (see my Maslow page, and my Frey page). Apparently, the cooperative system of Mondragon is very succesfull in garanteeing life-long employment. But of course, this success is reached through increasing growth within a capitalistic society, without real political democracy. As productivity increases, people should be able to decide shortening of the work time at the level of society as a whole. Without this possibility, job security can only be garanteed through economic growth, that could be undesirable from an ecological and social viewpoint.
The possibilities to guarantee life-long job security should be qualified somewhat. For instance, cooperatives in Basque country are allowed to contract 30% employees. The MCC "..has been trying to reduce labour costs by means of starting to hire small numbers of temporary workers who are not (yet) members (eventuales) of the co-op. Regardless of how few of them there may be, and regardless of whetherthey are ultimately eventuales or just temporales we would be faced with a serious breach of one of the key principles articulated by founder José Maria" (Lutz 1997, p.1419). Moreover, the MCC has started an aggressive foreign investment strategy, setting up plants in third world countries, that are run as capitalistic firms, with hired workforce.
Some books and papers on Mondragon:
Sharryn Kasmir (1996) "The myth of Mondragon. Cooperatives, politics, and working-class life in a basque town" Albany, NY: State University of New York Press
Mark A.Lutz (1997) "The Mondragon co-operative complex: an application of Kantian ethics to social economics" International Journal of Social Economics 24(12), pp.1404-1421
Terry Mollner (1994) "Mondragon: archetype of future business?" Bulletin Sci.Tech.Soc. 14, pp.83-87
William Foote Whyte, Kathleen King Whyte (1988) "Making Mondragon: the growth and dynamics of the worker cooperative complex" Ithaca, NY: ILR Press (there is also a second edition that I haven't seen)
2003-04-24 08:48 | User Profile
This is the first time Iââ¬â¢ve heard of Mondragon, but there are certainly more than a few suggestions here for a superior society to consider. Mandatory capital allocation by all participants and clearly defined remuneration scale are particularly intriguing.
I have no firm opinion on what shape a near-perfect economic structure should assume, other than that it take great care to navigate between allowing for human nature that always tends toward betterment of its own condition and creating barriers to protect weaker members from undue exploitation. With ââ¬Ëundueââ¬â¢ being simply the point where lagging elements, owing to either large numbers or extent of disparity, become detrimental to the health of the state organism. Naturally itââ¬â¢s in the (viable) stateââ¬â¢s interest to fortify its weak links as best as possible. The extent to which one adopts ideas from capitalism, communism or anything in between is of no importance (certainly not for the sake of pretence or fear of association) so long as the final product is in line with the character of people comprising a nation.
There exists, however, a prerequisite that must be accounted for before we even start thinking about a more-ideal economic system. This -- the extent of dominion and, thus, number of incompatible bipeds to be included in a system -- the article recognizes quite nicely and makes plain the utter futility of even devising a scheme before its resolution:
As long as we have an international and global economy with low wage producers in China and elsewhere, it is doubtful that even the best organized and most efficient co-op can remain competitive in the long run.
If the workings of Globalization can be summed up in a sentence it may read something as follows: Cheap labour attracts capital and the cheaper it is, while still somewhat competent, the greater the attraction. Though efficient, there is no doubting its pernicious effect on inhabitants of the hitherto lands of plenty. We need not mince words amongst ourselves. The chief problem with Globalization from a white manââ¬â¢s standpoint is that while it will raise living standards elsewhere by a small barely perceptible margin it will inevitably have an impoverishing effect here and bring our living standards much closer to those living in the third world. This we deserve to some extent since we have been living beyond our means* for decades, but I canââ¬â¢t imagine that anybody here is willing to undergo the masochistic treatment that we (or our elites) are preparing for ourselves.
Economic system is not an exception to the law of Minimum. This law states that growth is limited by that necessity which is present in the least amount. Of course, the growth rate is controlled by the least favourable condition, an element that the growth itself may promote in the absence of prudence and foresight. Since raw resources are still aplenty, the actual least favourable condition for capitalism is the indebtedness of domestic consumers, hence globalization and all-out effort to ââ¬Ëopenââ¬â¢ heretofore closed societies or, more accurately, markets. While the majority of new foreign consumers are poor, their real estate may be resource-rich and they can always pay via inexpensive labour and partake in the Western tradition of usury. Seen in this light, the drive for Globalization is merely postponing the inevitable because the number of consumers and their ability to pay is still finite and serves as the least favourable condition, a circumstance that the cleverest of accounting practices cannot put off indefinitely.
*Today, during the drive home I was informed by radio that as a citizen of Canuckistan I owe, in addition to any personal amounts outstanding, a sum of $172,000.00, representing my share of all federal, provincial, and municipal debts. Pity me not, for Iââ¬â¢m reasonably certain that this compares favourably with the majority of OD members. :o
2003-04-24 16:26 | User Profile
I found Madragon's website - which thankfully has an [url=http://www.mondragon.mcc.es/ingles/mcc.html]English Version[/url].
The thing about Mandragon is that it works. They have 60 years of experience with this, and they've shown prodigious results - total value is over $1.3 billion. It's a workable free-market alternative to both capitalism and socialism, and it is inspired by profoundly Christian thinkers. It's definitely worth further study.
Sisyfos: I agree with what you say about the need for a "national" approach to the thing. Absolutely free trade would not allow the thing to work, especially for the lower working class and the others of our people that would most benefit materially from investing in a working cooperative.
Fortunately, Catholic social theory recognizes this (see Articles 56-58 of the Catechism of the Catholic Church). Catholic social theory is based around the ideas of solidarity, subsidiarity, private property, and nationalism. Mondragon addresses very well the first three, but in order to surive Spain would have to ensure that the cooperatives were protected from the predatory practices of other nations, for example China dumping goods manufactured in its Gulag system in Spain.
The Catholic hierarchy in the States ignores the nationalist aspects of Catholic social theory, because it wants to expand its own power and influence by importing tons of Mexican Catholics. The teasonous bastards.
I was hoping that my right honorable friend Wintermute would chime in on this.
Walter
2003-04-24 16:46 | User Profile
Originally posted by Walter Yannis@Apr 24 2003, 11:26 ** I was hoping that my right honorable friend Wintermute would chime in on this. **
And I join you in that hope.
Wonder where our favorite pagan suckling in a creed outworn has been?
Off suckling, I guess. :sleep: