University of Vermont ScholarWorks @ UVM UVM Honors College Senior Theses Undergraduate Theses 2014 Evaluating Workplace Democracy in Mondragon Anders Asa Christiansen University of Vermont Follow this and additional works at: https://scholarworks.uvm.edu/hcoltheses Recommended Citation Christiansen, Anders Asa, "Evaluating Workplace Democracy in Mondragon" (2014). UVM Honors College Senior Theses. 31. https://scholarworks.uvm.edu/hcoltheses/31 This Honors College Thesis is brought to you for free and open access by the Undergraduate Theses at ScholarWorks @ UVM. It has been accepted for inclusion in UVM Honors College Senior Theses by an authorized administrator of ScholarWorks @ UVM. For more information, please contact [email protected]. Evaluating Workplace Democracy in Mondragon Anders Christiansen Department of Political Science Honor’s Thesis University of Vermont May 2014 Committee Members: Jan Feldman, Ph.D. Cornell University Shirley Gedeon, Ph.D. University of Massachusetts Amherst Peter Von Doepp, Ph.D. University of Florida Abstract Following the global financial crisis in 2008, the Mondragon Cooperative Corporation was used as an example of an alternative to capitalist development. At the same time, much of the recent literature on Mondragon has questioned whether Mondragon’s democracy has degenerated, without drawing definitive conclusions. I review how democracy has been defined in the past and conclude that while Mondragon’s conception of democracy is applicable in small homogenous cooperatives, it needs to be reformulated in order to apply to large, diverse groups. In its current state, Mondragon cannot be considered a democracy. This is reflected in the way Mondragon confronted the 2008 economic crisis. Contrary to common belief, Mondragon has not shown abnormal resilience or provided a model of a more humane way of confronting economic crisis. In 2013, Fagor Electrodomésticos declared bankruptcy, the first and largest cooperative in the group. The bankruptcy highlights the urgent need to expand and consolidate democracy. This paper offers tentative solutions to revitalize the democratic institutions that made Mondragon the model for worker cooperative groups across the world. Acknowledgements I would like to express my sincere thanks to Professor Jan Feldman for introducing me to Robert Dahl’s Preface to Economic Democracy in her Democratic Theory class and for her guidance as my thesis advisor. I also extend my gratitude to Professors Peter Von Doepp and Shirley Gedeon for their help and ideas. My experience at the University of Vermont would not have been the same without these three fantastic professors. I would like to thank everyone at Mondragon who agreed to be interviewed and not only taught me about the cooperatives, but introduced me to Basque culture. My research would not have been possible without an Undergraduate Research Opportunities Program (UROP) grant and the help of Ann-Kroll Lerner. Table of Contents Chapter 1 - Introduction .................................................................................................................. 6 Chapter 2 - Background .................................................................................................................. 9 Chapter 3 - Defining Workplace Democracy I. Definition ............................................................................................................................... 15 II. What kind of democracy? ..................................................................................................... 16 III. Goals of Classical Democracy ............................................................................................ 21 IV. Goals of Modern Democracy .............................................................................................. 25 V. Democracy in Mondragon .................................................................................................... 27 Chapter 4 - Mondragon Case Study I. Mondragon’s Worker Cooperatives ....................................................................................... 30 II. The Mondragon Cooperative Corporation ........................................................................... 40 III. Bankruptcy of Fagor Electrodomésticos ............................................................................. 49 IV. Solutions.............................................................................................................................. 55 Chapter 5 - Conclusions ................................................................................................................ 60 Works Cited .................................................................................................................................. 63 List of Figures Figure 3.1: Classical and Modern Democracy .............................................................................. 21 Figure 4.1: Growth in Mondragon and Basque Region ................................................................ 44 Figure 4.2: Employment Growth in Mondragon and Basque Region .......................................... 44 Figure 4.3: Industrial Growth in Mondragon and Spain ............................................................... 46 Figure 4.4: Industrial Employment Growth in Mondragon and Spain ......................................... 47 Figure 4.5: Membership Ratio ...................................................................................................... 48 6 Chapter 1 - Introduction Mondragon is often cited as the most successful example of democratic enterprise in the world for its size and global presence. The cooperative group from the Basque region of Spain is a competitive multinational corporation with production plants in every continent. In Mondragon cooperatives, capital is owned by its employees who elect representatives to the governing council (similar to board of directors) and vote on issues of governance. Worker participation in Mondragon has led to many different outcomes than in non-democratic firms. For example, the ratio of the highest to lowest salary of Mondragon members is less than 20 to 1. In contrast, in 2013 the average executive in the United States made 204 times that of rank and file workers, with the most extreme case reaching 1,795:1 (Smith and Kuntz 2013). In Mondragon, no member of a cooperative has been permanently laid off. Instead, unproductive members are relocated to other cooperatives where they can be more useful. Its mission statement declares that: “[Mondragon] encourages participation and the involvement of people in the management, profits and ownership of their companies, developing a shared project which brings together social, business and personal progress.” In recent years, however, doubts have been cast on how democratic Mondragon really is. Since Mondragon’s founding in 1956, it has grown from five workers to over 80,000. The values of these workers no longer resemble those of the homogenous and tightly-knit membership of the past. Workers tend to be hired for their skills rather than being self-selected adherents of cooperativism. Democratic institutions have not caught up with these changes. The original conception of democracy was equated with values of solidarity and equality. Only minimal institutional guarantees of being able to influence governance were needed if there were few inequalities and members all sacrificed for the common good. Today, equality and solidarity have 7 eroded under competitive pressures of the global marketplace. This development requires a new conception of democracy that ensures equal representation of interests and accountability for those in power. If democracy is to exist in Mondragon, it will look very different than the original vision of democracy espoused by its founders. Today, participation in the governance of Mondragon is limited. Rank and file workers in many cooperatives are underrepresented and members are unable to perform effective oversight of governing bodies or provide accountability. In the Mondragon Cooperative Corporation (MCC) structure that governs all of the constituent cooperatives, decisions are made by indirectly elected representatives and are seen by many workers as illegitimate. Many workers are excluded from the democratic process entirely and this exclusion is reflected in the policies of the company. The economic crisis of 2008 brought to light how undemocratic Mondragon had become, exhibiting extremely different treatment of members and contract workers. Scholarship on the economics of Mondragon has consistently stressed the economic benefits of workplace democracy, most recently highlighting its expanding global presence with data extending until 2008 (Arando et al. 2010, Arando et al. 2011). I compile the most recent data and show how most of the cooperatives’ growth was due, not to workplace democracy, but to growth of non- cooperative employment. Contrary to many assumptions that cooperatives are more resilient, the MCC’s growth was actually pro-cyclical. After 2008, a greater percentage of workers were laid off in Mondragon than in Spain or the Basque region. While every member of Mondragon retained their job, thousands of non-members who had no voice in the company’s policy lost theirs. In November 2013, Mondragon’s founding cooperative, Fagor Electrodomésticos, declared bankruptcy. This cooperative illuminates the dynamics of the cooperative group post- 2008. It has grown in size and hierarchy and workers