Mondragon: What is Solidarity?

In an earlier post about how one becomes a member in a Mondragon cooperative, I discussed an example of Mondragon solidarity –– the idea of what is fair for pay as expressed through their standards for keeping the distance between lowest paid and highest paid worker relatively small.

Solidarity is deeply embedded in Mondragon’s business model starts with the notion that capital is subordinate to labor. This idea affects how profits are distributed within and between cooperatives, how those profits are used, and how the system works in times of crisis.

This is important, because it explains how Mondragon can support its own system of social welfare, the financing of new cooperatives, worker education, and research and development for innovation.

First off, it makes a difference that the highest paid worker in a Mondragon cooperative typically doesn’t make more than 6 times more than the lowest paid worker.  Compare that to Forbes magazine’s report  on 2013 U.S. CEO salaries which averaged $11.7 million or 331 times that of the average worker (or 774 times as much as minimum-wage earners).

Having a ceiling on highest wages means that if a company is successful, more money is simply available to invest in other things.

With more surplus available to invest in creating jobs and supporting workers, Mondragon cooperatives invest in 15 research centers that support the development of new product lines, markets, and cooperative companies in sectors that share common interests. They support a social welfare system that complements what is available from the state. They support worker training and cooperative education, as well as university programs.

However, in my mind, perhaps the greatest recent test of Mondragon solidarity is related to the closure of Fagor Electrodomésticos, which produced consumer home appliances, and was one of the very first cooperatives in the system.

After the company, which employed 2,200 people, had been experiencing heavy losses for several years, they asked the system for help in 2012. According to Inake Belaus of Mondragon Services, the response of the Annual Congress of all the Mondragon Cooperatives (representing about 75,000 people) was a decision for all of the coops to take a 3% salary cut for the next 5 years in order infuse capital into Fagor Electrodomésticos in an effort to prevent a plant closure –– a clear position of solidarity, which was followed by a $70 million investment in the company.

However, when Fagor Electrodomésticos returned in the following year, 2013 with a request for additional support, that time, in 2013, the decision was made to close the plant.

There are many factors which affected the viability of the company –– competition from Asia, the devastating mortgage and foreclosure crisis in Spain and elsewhere in Europe which severely affected consumer demand for home appliances, and some analysts cite management issues. But as someone was very active in the 1980s movement for plant closure legislation in the U.S., and a witness to the broken lives that resulted from the deindustrialization of America during that period, I have a lot of regard for Mondragon’s tenacious response to the problem, which included providing two years of unemployment benefits through their Lagun Aro social welfare system, advice and support to those who asked for it, offering early retirement, and relocating hundreds of Fagor workers in other cooperatives in the system.

Mondragon representatives are still working with a few score of unemployed Fagor Electrodomésticos workers today, are still concerned, and still talking about it. Even with support, losing a job is a traumatic shock not only for a worker-owners (who like any other business owner lose the equity they have built up over the years in the company along with their job) but to the system as well, which has been committed to job creation for 60 years. But Mondragon seems to have designed a system better equipped to absorb that shock than anything I have experienced in the U.S.