The Workers' Paradise

October 29, 2007

Real Social Security: Lagun-Aro

Filed under: Human Relations — Tags: — John McNamara @ 3:27 pm

Another post from October 2007 after returning from Mondragon. The full series of posts can be found at Breathing Lessons by clicking on Mondragon in the tag cloud.

When Americans hear the word “Social Security”, we think of a failed pension system and Medicare. This program was originated during the New Deal of Franklin D. Roosevelt and expanded by Lydon B. Johnson to include the Medicare system. The fund has been raided many times to pay for wars (Viet Nam), and the political excesses of Reaganism. It is expected to be bankrupt by the time that I am eligible for the benefits in 2030. In Spain, the phrase means something quite different. When they say “social security” the really mean a complete safety net for people. The following are my notes from a visit to Lagun-Aro, Mondragon’s social security organization. It was created in 1959 when the Franco government determined that worker cooperators are “owners” and therefore ineligible for the government’s social security program. As usual, Mondragon responded with innovation and a determination to make life good for their workers.

We met with Anna, the Director of Communications for Lagun-Aro. This organization was set up in 1959 after the Franco government kicked the worker-owners of Mondragon out of the Spanish Social Security System. In 1967, cooperatives were admitted to the social security system, but Lagun-Aro negotiated with the state to reach a deal where they continued to manage the system for Mondragon workers with a reduced premium. From this point, Mondragon workers were included in both the state and cooperative system.
The main features of Lagun-Aro include:

  • Representative Democracy (1 representative/20 cooperative members)
  • Solidarity and responsibility (co-pays)
  • Management competitiveness
  • 6-8% difference in cost from social security system
  • Management of benefits and expense control
  • profits kept to a minimum
  • Constant Adaptation
  • Transparency

As of December 2006,

  • 29,858 active members
  • 62,173 beneficiaries (partners and children)
  • 7,759     pensioners (don’t pay premiums)
  • €135 million in benefits
  • €185 million in premiums
  • €3,626 million in the Fondo Partimonal (Equity Fund)
  • €275 million Net Revenue

Workers pay 34% of their salary as the premium! Roughly one-third goes to the state system (11%). The remainder goes to Lagun-Aro. In the Spanish system, the worker pays 20% and the employer pays 20%, so the Mondragon worker ends up paying only 35% by working through Lagun-Aro.

The system has two types of benefit categories: “pay as you go” and “accrual”

The Pay As You Go includes: Temporary Disability, Sick Days, Unemployment and other issues. The Accrual includes: Permanent Disability, Retirement and Pension.

In 2007, the General Assembly voted to keep medical care within the cooperative systems. The Spanish system is free; however, one can wait months for proper treatment.

For a US citizen, the benefits seem amazing: 100% pay for maternity leave, 13 paid days for paternity leave, Temporary Disability gives 80% of salary (after 4 months it jumps to 90%).

Unemployment gets a bit more interesting. At Mondragon, a worker may be offered work in a more productive cooperative rather than unemployment. This helps both the worker and the involved cooperatives (the coop in trouble keeps the worker on hold for when times are good, the coop that is growing gets a temporary worker until they can see how permanent the growth is and the worker keeps their job).

Culturally, the community is changing a bit from the early days. As a result, absenteeism is on the rise and this has caused some individual cooperatives to take steps to address the issues. At Fagor, for example, workers are not paid for the first day of sick leave, but then receive pay for the second and longer consecutive days.

The cooperative does pay employment insurance that would make any of us envious in the United States. Mondragon (through Lagun Aro) pays 100% of the workers salary for two years. The Spanish government pays 50% for 18 months. Lagun-Aro constantly runs comparison studies against the government’s plan. LA has better benefits and does it with less money.

I should add that the other benefit is not living in the United States. In Spain, as is true in most of Latin America, the Pharmacy still holds its position in society for being a true medical facility. In addition, the industry does not have a stranglehold over the market. Because of a mistake in packing, I had to purchase the generic version of Prilosec ® at a pharmacy. The month supply of Prilosec® cost less than my co-pay through my HMO in the United States and almost 1/5 of the cost for the brand-name in US stores.

In thinking about the health care, it is important to talk about phrases and costs. In the United States, workers pay 7.5% for Social Security and Medicare (which they do not have access to until they are 60 years old) and the employer pays 7.5%. In addition, the employer pays about 10% in payroll taxes for workers’ compensation and unemployment insurance. In my situation, I pay about 18.3% of my payroll for health, dental, and social security and my employer matches it (36.6% or my payroll). My employer pays another 10% of my payroll (46.6%). In addition, I have a combined temporary disability/term life that costs about 1% for a total of 47.6% of my payroll compared to the Spanish government’s 41% and Lagun-Aro’s 35%. However, their “social security system” includes Employment insurance, temporary disability, maternity and paternity leave, permanent disability, retirement, medical care, and a pension.

Essentially, Mondragon as a private sector organization provides better benefits for a cheaper price. It makes me wonder if Cooperatives should be exempt from paying these payroll taxes provided that they provided similar or better benefits for their workers.

There are two other interesting things about Lagun-Aro:

  1. It is a great example of workers making the best of a bad situation. I am sure that the Falangists thought that they have really screwed these Basque workers in Mondragon, yet they took the lemons and made lemonade (as they say).
  2. Once again, the culture of Mondragon which makes them constantly reinvent themselves and insist that they stay on the cutting edge.

The Co-operative Management Model

Filed under: Management — Tags: , — John McNamara @ 3:20 pm

José Luis LaFuente discussed the management model being developed by Mondragon. He began by placing the model in perspective with the overall philosophy of Mondragon. It begins with the Inspirational Philosophy (the principles, the culture, and the values of Mondragon). Then, the Management Model, which flows to the Systems, set to deal with situations, and the Tools (methodologies and instructions).

The pursuit of the Model began with a re-drafting of the MCC Mission, which referred to the Management model. Once that draft was accepted, then MCC’s council and management felt obligated to create it.

The creation of the model has followed a long evolution beginning in 1996 with an appreciation of Total Quality Management. Mondragon, at the time, essentially copied TQM (a concept reviled by US labor unions). In 2002, Mondragon caught the next flavor of the month and developed “Good Corporate Practices”. In 2006, Mondragon began a massive re-write with a specific internal focus. It created focus groups with the mission to focus on the Basic Principles and Mondragon culture. It created a draft of the model and tested it in three sectors: Eroski, Caja Laboral, and the industrial cooperatives. Once the model was adjusted, it was adopted. Instructors are now being taught in order to teach the “model” throughout the system.

Why is the model needed?

•To foster the development of management dynamics consistent with Basic Principles
•To increase business competitiveness (especially since the model cannot be copied by investor owned businesses)
•To make our management style a mark of identity that generates a feeling of well being, belonging, and helping to create synergies.
•It must be remembered that the model is a “tool, not a rule.”

The model consists on one core and four elements.  The center of the model is the Basic Principles of Mondragon. The elements include “people in cooperation”, “joint projects and participatory organization”, “excellence” and “socio-entrepreneurial results.”

The Basic Principles are divided into an internal and external focus. Internal includes democracy, finance, labor, etc while the external include other cooperatives, society and the environment.

The People in Cooperation include such things as team spirit, dedication of the owners, cooperative conduct, leadership and development. Joint Projects include the mission, vision and values of MCC, inter-cooperation, strategic perspective and deployment. Participatory organization includes corporate development, self-management, and communication. Excellent Company stresses a focus on the customers, processes, innovation, partnerships and social engagements. Finally, the social-entrepreneurial results also include a customer focus and innovation but also stresses profitability and people.

The next step is to create an implementation and assessment plan. This involves building awareness to create the implementation plan and also developing an individual approach for each cooperative. Each cooperative gets assigned a coordinator and elects a work team. They work together to assess the cooperative according to the model and develop an implementation plan. Overall, the important aspect is to bring cooperative ideals into the management model.

The actual model is unavailable to put on this site right now, but hit the link and you will see it. They do have another diagram related to the Model which they refer to as best practices:

What is unique about this model and the best practices is that the aspect of profitability is only one of several expected results. In the full model, the only reference to results is the phrase “socio-entrepreneurial results”.  Likewise, the Mission Statement of MCC clearly puts the focus on the principles and community of people:

“The Mondragón Corpración Cooperativa (MCC) is a socioeconomic reality of a business nature with deep cultural roots in the Basque Country, set up by and for people, inspired by the Basic Principles of our Co-operative Experience, committed to the community, competitive improvement and customer satisfaction, to generate wealth in society by means of business development and job creation, which:

•Is based on a commitment to solidarity and uses democratic methods for its organization and management.
•Encourages the participation and integration of people in the management, results and ownership of their companies, in order to carry out a joint project harmonizing social, business and personal progress.
•Promotes training and innovation, based on the development of human and technical skills, and
•Applies a Management Model of its own to achieve positions of leadership and promote Co-operation.”

In addition, this marks a true departure from Mondragon’s history. Mondragon, like most of Spain, came out of the cloud of fascism with an inferiority complex. They looked to the more energetic countries for lessons in business management. The timing could not have been worse as the Franco regime ended just as Breton Woods was changing to a neoliberal economic model. Thus, the models of Japan, Chicago School of Economics and Harvard held sway for many years. What is exciting about this model is that they are looking internally for guidance. One might argue that it is just so much Corporate Social Responsibility BS; however, after speaking with workers, managers, and trainers, one realizes that this is the genuine form of CSR that can only exist within the cooperative model.

Between the mission statement and a management model that clearly intends to institutionalize the principles of the cooperative, it appears that Mondragón’s leadership have finally found their footing and are beginning to create structures within the organization to properly deal with the effects of globalization and the European Union. I cam away from this discussion with the distinct feeling that, while MCC has a long way to go, they are not strictly being defensive anymore, but are on the move and now believe in exporting the revolution!

October 28, 2007

The Ownership Society

Filed under: Movement — Tags: , — John McNamara @ 9:08 am

October 2, 2006

That was the buzz a few years ago from the White House. They, meaning the kleptocrats and their Wall St. friends, wanted to open up the locked box of Social Security and allow people to “invest” their social safety net into the market place. Certainly, the market can do a much better job of helping people prepare for retirement than the government (oh, excuse me: tha gubnint). So, came the pronouncement from the CEO of USA, Inc. that he would create an “ownership society” in which people had a sense of owning their destiny.
Of course, the “ownership society” already exists. It shows up in the forms of cooperative business structures as grocery stores, HMO’s, bakeries, engineering firms, home nursing, home care, cab companies and a host of other businesses. It also provides lower cost housing and, in some case, acess to automobiles. Of course, the idea of collective ownership isn’t what the “ownership society” is about. It is about paying a company a fee to manage your money and hoping that they manage it correctly. Isn’t a true ownership society about taking economic control of one’s life and not just handing money over to a private firm who charges a fee?

Here is a fun essay about the Co-operative Ownership Society.

After a false start in April, this space will continue. I have recently entered St. Mary’s University’s Masters of Management: Co-operative and Credit Union’s program. It appears to have been created to develop strong management practices for the co-op world. Prior to this course work, the only option was the tradtional M.B.A. which pulled its co-op minded (and funded) students away from their cooperatives and toward their capitalist competitors. In addition, I have become more active with the movement. Expect to hear more about both in the coming months.

October 15, 2007

Worker Co-operative Development–the Basque Way

Filed under: Movement — Tags: , — John McNamara @ 3:22 pm

Another post from 2007 and the Mondragon Trip.

Today, we listened to folks from Elkar-Lan S. Coop. This is a secondary cooperative made up of two cooperative federations and an cooperative advisory board to the Basque government. Their primary mission is to help worker cooperatives come to fruition. This is not a Mondragon organization. While the cooperatives that they create might end up joining in with Mondragon, there is no expectation to do so. Elkar-Lan provides assistance from drafting of incorporation statements (articles and by-laws) to feasibility studies. Their services are free; however, they stress that they exist to help cooperatives be cooperatives. They encourage and even demand that people use business incubators for the operational side of the business. Part of this is to not compete with the for-profit or even not-for-profit business incubators.

As part of their service, they will provide a staff person to work with a cooperative up to one year into operation. Again, it is for the cooperative (democratic) end of the company. They will help with training people on the methods of running meetings, social councils, and engaging in the meaningful discussion required of democracies.

This is an incredible resource. While the USDA provides similar services to rural areas in the United States, it is great to see such a wonderful and proactive organization. They actually mail out circulars to 15,000 businesses to year encouraging them to convert to cooperatives if they are planning retirement! Since their inception four years ago, they have helped to create and average of 35 Worker Cooperatives per Year!

Of course, part of the reason that they are so successful is that they are in the Basque Country. Here, people really believe in worker cooperatives in a way that would even make their heads spin in San Francisco! One of the major challenges to our movement is not heart, spirit or even knowledge. It is capital. Here is what the Basque Government does:

The law creates the following minimum effort to create a cooperative:

•Conform to the Basque Cooperative Law
•Have at least three people
•Have a minimum of 3,000 Euros (roughly $4,200)

The Basque Government will provide, as a grant, up to 3,000 Euros per worker (up to a total of 30,000 Euros per cooperative).

For workers who have become unemployed, they can have their entire unemployment benefit paid as a lump sum only if they use the money to start a worker cooperative.

So, ten unemployed workers can pool their unemployment and get an additional 30,000 Euros for start up capital.

God, I thought that the Canadians had it good! This is a government and a community that really understands the value of worker cooperation and puts their money where their heart is.

Tomorrow, we see Mondragon’s incubator and visit the spot where it all began: JMA’s original school. Ground Zero of the modern worker cooperative movement.

October 14, 2007

Management Training in a Worker Cooperative

Filed under: Education,Management — Tags: , , — John McNamara @ 2:41 pm

The day began early as we jumped on the bus to head off to Mondragon’s Otalora Management Training Institute for a full day of discussion about the methodology of training Mondragon’s managers, how Mondragon uses its system to help and enhance cooperatives, and a discussion with the International’s CEO regarding the future of Mondragon’s international operations. For this post, I will just focus on the management training concepts.

First, though, Otalora is housed in a midevel fortified home (a sort of small two story castle) from the middle ages. It is an incredibly beautiful building situated in rolling hills.

We met with Julio Cantón, head of the Management Training and Development Center (Otalora) for Mondragon. He has been involved with the cooperative movement for more than 50 years. Working mainly in the FAGOR group, in Human Resources, he has been in charge of management training since 2000. The following are my notes through a translated presentation.

He began his discussion by defining the two management teams in every worker cooperatives (and every cooperative for that matter): The Governing Council (Board of Directors) and the Professional Management Team. Both, he noted, need training but each has a different function.

The cooperative is an unfinished project. It was created in the late 1990’s as the Mondragon faced the realities of competition after Franco and Spain’s entry into the Common Market. MCC encompasses all of the different cooperatives and aligns them into sectors. This was done in a democratic way—the cooperative leaders had to “seduce” all the different cooperatives. In the end, all of the general assemblies of the cooperatives had to vote to join the MCC. It is this nature of the cooperatives, the constant dialect, that will keep this project, MCC, as an ongoing project and the leaders will have to constantly pursue, persuade and seduce the participants in the cooperatives.

Cooperative Manager need to be a different type of manager. Otalora undertook the attempt to determine a Mondragon vision of a cooperative manager. By this, they created a “Profile of a Cooperative Manager. The design process involved two levels. First, a working group was created of Otalora staff and cooperative directors. They proposed a profile. Second, the design was submitted for peer review to all of MCC’s directors (general managers). This provided important feedback and the profile was adjusted until consensus was reached.
I liked some of the ideas presented in the profile and that the MCC discussed this concept of what qualities make up a model manager. Especially, I enjoyed the discussion over encouraging dissenting opinions as a quality of leadership. Not simply allowing people to voice their minds, but actively placing critics onto key teams and committees. Winning over critics is a leadership quality and, I imagine, helps unify the cooperative when the final decision is reached.

On the other hand, this presentation didn’t really seem to present any real cooperative difference. It could have easily been a consultant lecturing from the dogma of any business school. How do Mondragon’s Basic Principles play into the role of a manager? How does the Identity Statement adjust the actions and attitudes of the manager?

Further, on the issue of technical knowledge, I was shocked that the MCC training program saw no need to create a cooperative response to management technique. How can they really believe that the method of managing corporations is separate from the ideology of the profit motive? Isn’t the whole concept of “human resources” itself a dehumanizing phrase that makes workers merely another “asset” to be manipulated and used up for the purpose of increasing shareholder value? Doesn’t the cooperative world have a better way of marketing its goods and services that doesn’t exploit people’s desires and fears?

October 13, 2007

Mondragon and Globalization, Basque Country and Ghosts

Filed under: Management — Tags: , — John McNamara @ 2:38 pm

Today’s schedule: Group Discussion in the Morning. We then left Hotel Sandika and the mountains to have lunch and discussion with Anjel Herrassti in Donostia. We returned to Mondragon and checked in at the Mondragon Hotel.

The first part of the discussion was a review of why Mondragon has succeeded as a cooperative business: Sustainability, worker participation (sovereignty), education, integration, diversification, innovation and flexibility. How are these terms used in investor-controlled companies? How do we talk about cooperative businesses outside of the dominant paradigm?

As part of this we discussed the pillars or keys to success:

•Control and use of capital
•Redefinition of labor/management relations
•Management education
•cooperative development
•lack of “silo” mentality—horizontal and vertical integration
•Intercooperative fund mechanism.

All of these are the key to Mondragon’s success. It is hard to imagine that they would be the same cooperative without a commitment to these pillars.

Of course, Mondragon, like the rest of the cooperative world, is an island in a capitalist ocean. The problems of capitalism can’t help but creep into our cooperatives because we are part of society and societal norms get determined through a capitalist lens (for now). As a result, the issues of racism and paternalism play a role even in a cooperative structure. This is the primary focus of the Kismar ethnography and certainly Mondragon’s history has raised questions as to their ability to ascend the dominant paradigm of capitalism and create a new socio-economic order. Mondragon University teaches the neo-classical economics of the Chicago and Harvard business schools and, as was apparent by the discussion at Otalora, they have not developed a management training model based on cooperative economics.

We spent the remainder of this time preparing for the afternoon session with Anjel Herrasti as professor as the University of the Basque County.

Anjel wrote his dissertation on the internationalization of cooperatives and teaches business economics. He is working on developing a model for a multi-national cooperative that would be a democratic multi-national enterprise.

He gave a brief history of the globalized economy from the early 1990’s to the present. Mondragon was forced to follow suit as Multi-national moved jobs overseas and demanded that suppliers follow. Mondragon has responded defensively in an effort to keep jobs in Basque. As part of this, they have also kept their knowledge base in Mondragon, which the real power of any organization. Anjel presented some key criticisms of Mondragon:

  • Foreign workers see no difference between the cooperative and a corporation.
  • Mondragon has been promising change for 12 years with a “wait and see” approach.
  • They use a traditional top-down control model (basque managers).
  • Cooperative managers are resistant to creating expectations of ownership
  • Fagor bought Polish companies and cut jobs by 50% (to keep jobs in Basque); it is expected to do something similar with the purchase of the French Brandt Corp.
  • Fagor fired union organizers in Turkey and have created “yellow” or company unions elsewhere—a similar method of other MNEs.
  • On the postive side, at Irizer, workers are the richest workers in the world. The foreign workers get a 20% profit share and have a participatory model; however, the participation stops at governance. They are the birds in the gilded cage.

Finally, Anjel present his five-step or five level plan for converting foreign plants into worker cooperatives. It is a very solid, strong plan that allows for the necessary time to make the necessary changes to the system and the culture for conversion. It allows for the conversion in a way that as workers become educated about cooperatives, become champions of the cooperative model, and earn enough share of the profits to participate economically, that the plant can convert into a Mondragon cooperative with a minimum of stress to the organization.

I remember last semester when I proposed my idea for a multi-national to the class. I was essentially scoffed at by the group (in a polite way). I think that it is very hard for people to see cooperatives as being “big” and still being democratic. Part of that might be that we see the failure of “big government” and “big corporations” and translate that to the cooperative model which seems to thrive on the sense of community. However, the sense of community that we in the west think about it tends to be based on falsehood. As politicians and corporations peddle the myth of neighborhoods and family as the basic unit of society, Mondragon (and Arizmendiaretta) know that the real unit of society has actually become the corporation. Being “big” is only bad if it fails to live up to the principles and core values of the cooperative. I found a kindred spirit in Anjel and really appreciate his insight on how a global world of cooperation can work. He does see how democracy can be kept alive in a large, multi-national organization. It has been my argument that if we cooperators cannot figure this out (and insist on staying small regional or local entities) that the movement will wither and eventually succumb to the Wal-Marts, Tesco’s and Toyota’s of the world.

The rest of the evening was spent enjoying the old part of Donostia. Becky and I chose to return later (after the study trip) for a fuller afternoon of exploration. It is an amazing city, with wonderful food.

October 12, 2007

Worker Cooperative Incubation–the Basque Way

Filed under: Management,Movement — Tags: , — John McNamara @ 2:41 pm

Today, we listened to folks from Elkar-Lan S. Coop. This is a secondary cooperative made up of two cooperative federations and an cooperative advisory board to the Basque government. Their primary mission is to help worker cooperatives come to fruition. This is not a Mondragon organization. While the cooperatives that they create might end up joining in with Mondragon, there is no expectation to do so. Elkar-Lan provides assistance from drafting of incorporation statements (articles and by-laws) to feasibility studies. Their services are free; however, they stress that they exist to help cooperatives be cooperatives. They encourage and even demand that people use business incubators for the operational side of the business. Part of this is to not compete with the for-profit or even not-for-profit business incubators.

As part of their service, they will provide a staff person to work with a cooperative up to one year into operation. Again, it is for the cooperative (democratic) end of the company. They will help with training people on the methods of running meetings, social councils, and engaging in the meaningful discussion required of democracies.

This is an incredible resource. While the USDA provides similar services to rural areas in the United States, it is great to see such a wonderful and proactive organization. They actually mail out circulars to 15,000 businesses to year encouraging them to convert to cooperatives if they are planning retirement! Since their inception four years ago, they have helped to create and average of 35 Worker Cooperatives per Year!

Of course, part of the reason that they are so successful is that they are in the Basque Country. Here, people really believe in worker cooperatives in a way that would even make their heads spin in San Francisco! One of the major challenges to our movement is not heart, spirit or even knowledge. It is capital. Here is what the Basque Government does:

The law creates the following minimum effort to create a cooperative:

•Conform to the Basque Cooperative Law
•Have at least three people
•Have a minimum of 3,000 Euros (roughly $4,200)

The Basque Government will provide, as a grant, up to 3,000 Euros per worker (up to a total of 30,000 Euros per cooperative).

For workers who have become unemployed, they can have their entire unemployment benefit paid as a lump sum only if they use the money to start a worker cooperative.

So, ten unemployed workers can pool their unemployment and get an additional 30,000 Euros for start up capital.

God, I thought that the Canadians had it good! This is a government and a community that really understands the value of worker cooperation and puts their money where their heart is.

Tomorrow, we see Mondragon’s incubator and visit the spot where it all began: JMA’s original school. Ground Zero of the modern worker cooperative movement.

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