Worker Owned Cooperatives

Subject: Going to Mondragon--First Impressions of Creating Jobs Through Worker-Owned Cooperatives

I left the Evendale Ohio meeting of GE unions last weekend from all over the country to start getting our members mobilized , impressed by the committment of the local GE union leaders and the solidarity we shared.

But I didn't go home yet--I went straight to the city of Mondragon in the Basque region of Spain, along the French border. Well, not exactly straight to Mondragon. It was a 26 hour jaunt that took me through Atlanta, Boston, New York, Madrid, Bilbao and then a rented car to the small city of Mondragon. I'm still standing, but barely.

What am I doing here? JOBS.

We all know the problem. It looks like we will stabilize at the GE Riverworks this year, which will mean hiring to make up for those who retire--and that's good. But it won't make up for the thousands we have lost. Our Ametek plant is down to about 22 people, the Veolia Waster Water Treatement plant is 30, the Saugus library is back up to 13 or so now that it's re-certified (including part-time), and Avis and Budget have a couple of hundred jobs between them. All our locations look pretty stable this year, but none expect to grow much.

All around us the jobs that do exist outside our union are getting worse. I know that from the calls that I get from our laid off members. The scariest question you can ask someone today is, "What are your kids going to do for a living?" Lynn has practically been abandoned. While the median income in Marblehead went up 20% in the last 20 years, it dropped in Lynn by 6-7% in the same period, as good manufacturing jobs left.

And the Great Financial Crisis has made jobs a lot worse. Professor Andrew Sum at Northeastern's Center for Labor Market Studies found that even in the worst peroid of the recession (last quarter of 2009) the top 20 percent of family incomes were doing fine--basically at full employment. ("Recession, what recession?") But the bottom 20 percent were at Great Depression levels of unemployment, even without counting people who could only manage to find a few hours of work a week.

And while the great majority of people have suffered, corporations have made out. There have been massive productivity gains in the last two years, with huge pressure to produce more with less, especially with less workers. You can see this at every Local 201 workplace. All the benefit of the increased effort and efficiency has gone to corporate profits, in what Sum calls "the most lop-sided gains in corporate profits relative to real wages and salaries in our nation's history". By mid 2010 coporate profits had gone up 57%, while wages and salaries had gone down two percent! ( You can read Sum's articles by googling the Center for Labor Market Studies at Northeastern and checking out "publications". )

So what do we do?

In Spain, Italy, Argentina, and Cleveland and New York and even in the Boston area, workers have built their own businesses, worker-owned cooperatives. They raise money and determine among themselves how it will be spent. Every penny they make goes to wages, back into new products, or advanced research. No personal fortunes are amassed, no hedge-fund kings siphon off the proceeds into crazy stock ponzi schemes. These enterprises pay better, the jobs are more stable, and they produce cutting edge research and technology and often out-preform traditional for-profit competitors. And you can imagine worker-owners don't often vote to move their own jobs to China.

How do they do it? That's what I hope to learn here in Mondragon. I am traveling with Tony Dunnn, United Way Liason for the North Shore Labor Council and director of the E-Team, and Elisha Goodman, an MIT student who is working with the unions and community groups of the New Lynn Project to investigate building worker-owned co-ops in Lynnn. The United Steelworkers of America, after losing hundreds of thousands of good jobs, is targeting ten factories to build as worker co-ops in the US in a partership with Mondragon.

We got some initial ideas this afternoon when we met with Fred Freundlich , an American who married a Basque woman, and lives here and works at Mondregon. Every few years a Congress of delegates from each of the co-ops makes overall decisions--like how much of the profits from each of the over 120 co-ops go into the general fund, and how much the individual co-ops keep for their own development. The last Congress decided to set a rate of 15-40% of profits to go to the general funds. In a bad year a co-op would keep more, in a good year less. The general fund at their central Mondregan co-op bank lends money at low or no interest to co-ops that need it.

Almost no one ever leaves employment at the Mondregon co-ops. Workers are offered work at a different co-op if theirs is losing orders, or early retirement. They get 80% of their pay when laid off while the central co-op placement service finds them work. In co-ops where the work is seasonal, a small percentage of temps who are not worker owners can be hired. These workers don't get the co-op benefits, and are limited to 15% of the workforce at the most. Overall only a percentage or two of the workforce were temps, and they were laid off when the Financial Crisis hit in 2008.

Even the managers never leave. The mid-level managers are paid at close to traditional capitalist companies, but the higher up's salaries are limited--I read at 70% of the market rate for other top managers, not positive of the rate yet. But they never leave either, because the work atmosphere and the support is so much better than in traditional companies. (They don't leave because the health care sucks, as happens at GE.)

The focus is on manufacturing, and the extensive funding of Research and Development by both the individual co-ops and their own Mondregon University keeps the co-ops on the front-lines of product development. They have a machine tool factory that I will visit if I get a chance, and they are about to introduce an electric car.

Tomorrow there will be more formal presentations. I'll report if I can tomorrow night, and at this month's union meeting.

--Jeff Crosby, Monday January 10, 2010

How the Cooperatives Work

Today we met wiith Mikel Lezamiz, the Director of Cooperative Information of Mondragon. He explained to us how the cooperatives work. My head is swimming with numbers right now, and I received more information today than I can process--but here's what I got.

Mikel gave us an example from the period of the current Great Financial Crisis (2008-now) , when orders dried up, from the cooperative which manufactures home appliances, called Fagor. We visited one of their factories this afternoon, where they make 2.3 million appliances a year. We observed the washing machine line--where they make 700,000 machines annually.

All worker owners buy into the cooperative company, paying about $18,000 to join. The money is deducted from their check over time. The wages of the workers are typically 10% above competitors, and they receive another 7.5% cash payment annually of the value their share of the ownership of the enterprise. But the home building crisis of 2008 eliminated all profits and ate into the reserves the worker owners had built up in Fagor. There were 1.4 milliion housing units built in Spain in 2007, and virtually none in 2008--unemployment in Spain is about 20%, even today.

So the General Assembly of Fagor, where each worker of the enterprise gets a vote, voted to take an 8% pay cut in 2009. There were long informational meetings in small groups leading up to the Assembly, and much debate. The vote passed by 63%. Last year when things were a bit better, the General Assembly voted to give all workers a 2.65% raise. All worker-owners, management included, received the same pay cuts and the same raise. This time the proposal passed by 70%.

The Mondragon Congress, which meets annually and includes elected representatives from all 120 co-ops, set a maximum pay of 70% of market rate for managers. But each cooperative sets its own pay by vote of the General Assembly of each co-op , which are autonomous. Most are set around 4.5 times the pay of the lowest worker. The CEO of the cooperative Mondragon bank (Caja Laboral) makes 8 times the lowest paid worker, and the CEO of all of Mondregon, employing today some 86,000 workers, makes 9 times the lowest paid worker. The lowest paid worker makes $14000 Euros a year--about $18,145, not including the additional annual payment mentioned above. Skilled workers make more, of course. So the top managers typically make about $82,000 a year. Pay in European countries tends to be lower because health care, insurance, and in some cases housing are much cheaper than in the US. Temporary workers are paid the same and enjoy the same benefits, but do not have job security. Ninety-nine per cent of Mondragon workers are worker-owners, not temporaries. Temps are hired only when the work is very unstable.

The workers are covered by additional benefits provided by the Mondragon cooperatives, above that provided by the Spanish government. Sick pay starts the first day of illness and on top of the government benefits make you up to 80% of your pay. The Spanish government pays 70%, but only after the fourth day. Mondragon pays an additional pension on top of the government Social Security, and you withdraw the value of your ownership of your own co-op when you retire as well. The government requires retirement at 65, but most Mondragon workers retire earlier, around sixty-one. Mondragon worker owners can borrow from the central Mondragon bank at 1% interest. These benefits are funded by a portion of profits that each of the 120 Mondragon co-ops pay into the central funds.

At the home appliance plant we visited, the workers get four weeks vacation. The whole plant shuts down--one week at Christmas, three weeks in the summmer--for vacations except for maintenance on the paint line. Workers function in teams, either in assembly or the stamping and other production areas, and learn all the jobs on their teams of 4-7 workers. They get breaks every two hours for different amounts of time. The workers decide among the teams how they want to rotate the jobs--some do it by the day, some after every break, or whatever. All production, salary, and profit information is provided to workers. All training is during work hours. Openings are posted and then filled by the team production leader.

We almost needed to post an opening for Tony Dunn, former Special Machinist in Bld. 64 in the Riverworks and director of the E-Team Machinist Training program who is part of our delegation, when a door dropped cutting him off from us when we went from the manufacturing area to the shipping area--but we found him! The safety standards are very closely monitored and recorded, but some of the personal safety equipment we have at GE were not in evidence.

There were more women in assembly than the manufacturing areas. Mikel told us at lunch after the tour that Mondragon came from an industrial culture and that the Fagor plant was all men when it opened in 1956. Today Fagor is 41% women, and Mondragon as a whole employs 42% women, but only 15% of the management is female.

In the afternoon we visited a factory making simulators like lathes and millers for training. Workers stay there or work at other places while they learn basic work skills, and then move on to other coops or other traditional workplaces.

Tonite we are looking for a place to eat--they don't typically eat till 8 PM in the Basque area, so it will take some getting used to. But if yesterday was any indication, the food is worth the wait. We were told the Basque chefs are becoming very fashionable around the world, especially for seafood, and I can see why.

--Jeff Crosby, President IUE-CWA Local 201, and North Shore Labor Council. January 11, 2010

Reflections on Mondragon—Report # 3

During our final days visiting the Mondragon cooperatives, we were introduced to their complex research and development initiatives. Mondragon University supports the coops, and has ties to dozens of top universities and research centers around the world. (It costs about $5200 a year to attend, of which the student pays half.) There are also a dozen R&D centers attached to Mondragon’s industrial sectors, and we visited an innovation “incubator” where inventors and entrepreneurs are given creative support for their projects. The entire system is forward-looking. Mikel Lezamiz, the Director of Mondragon’s Cooperative Information, quoted founding priest Jose Maria Arizmendiarrietta: “However splendid the present may be, it is destined to fail if it turns its back on the present.”

The coops have specific advantages that allow them to out-compete the traditional companies. Profits are not siphoned off to unproductive uses. The management structure is flatter than traditional companies. Everyone is in a genuinely self-directed work-team. And the workers put all their creativity into the projects. As owners, they directly benefit from the wealth they create. At our GE Aviation plant here in Lynn, we have listened to Pilot Programs, Quality Circles, Worker Involvement, Work-Outs, Continuous Improvement, etc., for several decades. The managers actually do believe that the workers have something to offer the product. But they’ll never get what the workers in Mondragon contribute willingly, and management here can’t even imagine involving workers and the union in key decisions like design and investment. And this often hurts the company. You have to look no farther than GE’s empty “Factory of the Future” building in West Lynn, an over-automated white elephant that the union argued against constructing in the inflexible design the company adopted. A US professor studied Mondragon’s Fagor applicance business and figured that worker-ownership gave the company an 8% competitive advantage compared to conventional companies.

The workers’ higher wages, however , are a competitive disadvantage, especially relative to Chinese wages in manufacturing. Mondragon figures costs in China are one-third those at Mondragon in the Basque Region. “We have to compete with better quality”, they told us. In the Fagor washing machine factory we toured, a machine is taken off the line every two hours and attacked with hammers—then scrapped—to check the welds. Every single machine is run for 90 minutes to check for leaks or other flaws before it is shipped.

When we questioned whether Fagor could continue to produce in Spain and survive against Chinese competition, Jesus Heratti, Mondragon’s Commissioner for International Affairs and veteran Mondragon manager, pointed out that Germany has the highest wages in Europe and also manufactures more than any other country in Europe. Clearly wages are not the only factor in determining the success of a manufacturing enterprise, and careful thought will have to be put into factors that allow manufacturing to succeed in the United States if we are going to enter into a cooperative manufacturing effort here in Lynn.

Globalization?

This is part of an even bigger questions of how the Mondragon enterprises will continue their extraordinary success in today’s globalized economy. The “race to the bottom” nature of the free trade agreements across the globe since the 1990s have made it extremely difficult for any particular country or even region to adopt their own method of development. In response, Mondragon has itself globalized. Soul-searching discussion convinced worker-owners that it would take one or two foreign jobs to support a single job at home. Mondragon’s seventy-five foreign facilities exist across the globe, from Brazil to Poland to China. The result today is that the majority of Mondragon’s employees are not worker owners in cooperatives, but rather traditional employees.

Mondragon has addressed this challenge to its mission directly, attempting to change traditional factories into co-ops. But this is a very difficult project. Within the Basque area, Mondragon has managed to take failing traditional companies, at the urging of the provincial governments, and turn them around as cooperatives. Fifteen percent of Mondragon’s 120 cooperatives were originally traditional businesses. But it took years to convince the workers to become a successful cooperative, even in the Basque where there is a broader cooperative producing culture. (There are 600 cooperatives in the Basque provinces, mostly small.)

In the middle of the last decade, Mondragon determined at a Congress to set a goal of reaching 30% worker ownership in their foreign enterprises. The goal has not yet been reached. Experiments were initiated in Poland, Mexico, and Brazil and made considerable progress, but ground to a halt when the Great Financial Crisis hit at the end of 2007. Workers understandably were not about to buy into ownership of a plant they thought might go under at any time.

Unionized workplaces are often suspicious at first. In the United States, it is often after a company has run a facility into the ground that they turn around and offer the failed shell of an enterprise to the workers in some kind of Employee Stock Ownership plan. (Partly because Mondragon started under the regime of Spanish dictator Francisco Franco in the 1950s when unions were not allowed, Mondragon co-ops are non-union. Co-ops in other countries are unionized in many cases.) Laws governing cooperatives vary from country to country as well.

Mondragon does not get involved in politics, except for lobbying around reform of laws that directly affect cooperatives. This makes sense in the short run, since as any union leader knows political issues are often divisive among the workforce. This was especially true in the Basque Region, where the Basque language, culture and national rights were suppressed until Franco’s death in 1976, and there has long been a section of the people who wanted independence from Spain.

But it also means that Mondragon has no voice in the fight to stop the political changes in the economy since about 1980, often called “neo-liberalism”, based on free trade, privatization, and de-regulation. These changes have been designed to make workers defenseless in a race to the bottom, competing all against all. They have buffeted Mondragon as well as workers every where, despite the amazing efforts Mondragon has taken to preserve jobs. (While 25% of Spanish business shut down from the Financial Crisis of 2008 until now, only one of Mondragon’s cooperatives failed in the same period.) Workers of course participate in politics however they choose off the job.

Next Steps

We left Mondragon impressed, not just with the scale of their successes and the generosity of their time they spent with us, but with the honest, detailed and thoughtful answers to each of our questions. Their considered experience allows them to speak with clarity on everything from the challenges of globalization to how to distribute overtime.

For our part, we will continue to both investigate the experiences of workers in other countries to create worker-owned businesses, and to investigate starting our own here in the North Shore of Massachusetts. With good jobs going the way of the dinosaurs, and the recent Financial Crisis marking another massive shift of wealth to the wealthiest in our society and away from the rest of us, we have no choice but look for new answers. We intend to fight to keep every single good job we still have, and perhaps to create some new ones on our own as well.