The Workers' Paradise A Discussion of Workers Cooperatives and Building the New Economy

November 4, 2013

Managing Old Industries: A lesson for aging coops

Filed under: Management — Tags: , , , — John McNamara @ 12:56 pm

Last week, Mondragon’s General Consul announced that it had decided to cease its efforts to stabilize the FAGOR Cooperative Group. FAGOR electronics makes kitchen appliances: stoves, ovens, refrigerators, and even pressure cookers. It is the original Mondragon cooperative that began life as ULGOR (an acronym consisting of the first letter from the last name of each of the five founders).

Mondragon, for those new to this blog, is a system of hundreds of individual worker cooperatives that link together vertically and horizontally to creation one of the largest corporations in the world. The Mondragon Experience, as they call themselves, includes manufacturing, transportation, retail, k-University education, finance, and even their own social security system that rivals that of Spain and other European nations. FAGOR, itself, is not a single cooperative, but made up of hundreds and it is one of the larger sectors within Mondragon.

When I visited Mondragon in 2007, the warning signs were already present. Mondragon had just negotiated the purchase of Brand Corp, a French “white-appliance” manufacturer. This purchase would make Mondragon the third largest manufacturer of kitchen appliances in the world. Even then, however, they realized that the nature of the industry would only leave room for two, not three.

Part of the problem arises from the aging of the industry of kitchen appliances. The oven, range, and refrigerator have not changed since their inception with the exception of various bells and whistles (self-cleaning, timers, and electronics that can tell you your milk is about to curdle). One could even argue, that the biggest advent in refrigerators occurred when we no longer had to put blocks of ice in the back for cooling. Likewise, the stove and oven’s biggest advance was being able to use electricity or natural gas instead of wood or charcoal. These advances happened during a different century. Old industries are hard to compete within. The main way of competition is reducing costs and the biggest costs are that of labor and transportation. Without a US manufacturing base, FAGOR has little options and spreading its workforce outside of the Basque Country runs against its mission and creates its own problems (as the strike in Poland during 2012 pointed out).

The second problem arises from sentimentality. FAGOR isn’t just any group of cooperatives in the Mondragon experience. It is, literally, the stuff of legends. It is the physical embodiment of the vision of spiritual leader Don Josê Marîa Arizmenidaretta and his five students. It created the foothold that led to the creation of the Caja Labora Popular. Without FAGOR, there would be no Mondragon.  In 2007, we met with members of FAGOR and they seemed resigned to their fate. They knew that the Brand purchase was treading water. I asked about the idea of re-tooling the plants for other products, but that is apparently not an option for reasons that I don’t understand, not knowing the manufacturing industry.

Under Mondragon’s system, each cooperative kicks in about 10% of its surplus to a solidarity fund that then assists struggling cooperatives. Over the last several years, FAGOR has accepted close to 300 million Euros (close to half a billion, US). It seems, from reading the press release, that Mondragon has finally decided to cease life-support for lack of a better word. This will likely bring a process of bankruptcy.

I am uncertain as to how this will effect the workers and their substantial equity in the organization. Each member invests 14,500 Euros. Membership also provides benefits through the system. Hopefully, there will be some ability for workers to move to other areas of Mondragon with their equity. In any event, this will be a painful time for the cooperative.

I also think that it will be an important time for Mondragon planners to learn. This will be the first, but not the last, time that they will need to effectively shut down a industry that has become too old to produce decent jobs. It might provide some lessons about how to transition factories from one industry to another, how to build economic diversity within cooperatives so that as an industry becomes too unproductive, it won’t have such a heavy effect on the group. Most importantly, it might be a good thing to let the founders finally become the past. Mondragon will soon celebrate it 60th anniversary. The retelling of the creation myth will be central to that celebration, but so should the future. Mondragon doesn’t need to rely on”borrowing” designs from other companies, they now have the ability to enter new industries and be a commanding force. Part of learning to let go, involves embracing the new. This might involve reconsidering how the Solidarity Fund is used. Instead of propping up an aging industry, it could be used to retool for the future.

Of course, these are my musings from America. Mondragon is famous for “building the road as they travel” and have a great track record of learning as they go. It will be interesting to see how this story develops.

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