I’m not sure how I missed this article in the Economist about cooperative like Mondragon in the recession. Fortunately, we’ve talked about Mondragon at length in the course that Sean and I facilitated this semester, Alternative Approaches to the Firm (class blog here); one of my peers referenced the article in his final paper for the course.
The basic gist of the article is that cooperatives have different ways of handling the crisis from a typical firm. Cooperative members cannot be laid off, so they are moved around to other workplaces where they are needed, or retrained.
Problems may be shared with competitors, but solutions are not. A workers’ co-op has its hands tied. It cannot make members redundant or, in Mondragón’s case, sell companies or divisions. Losses in one unit are covered by the others. “It can be painful at times, when you are earning, to give to the rest,” Mr Zabala admits. Lossmaking co-ops can be closed, but members must be re-employed within a 50km (30-mile) radius. That may sound like a nightmare for managers battling recession. But co-ops also have their advantages. Lay-offs, short hours and wage cuts can be achieved without strikes, and agreements are reached faster than in companies that must negotiate with unions and government bodies under Spanish labour law…A constant flow of information to worker-owners, says Mr Zabala, makes them ready to take painful decisions.
One of the main tensions, though, is that not all employees are now members of the cooperative. In fact, 2/3 at Mondragon are not members, as the firm has been forced by competition to expand.
One of Mondragón’s many paradoxes is that worker-owners are also the bosses of other workers. People have been hired in far-flung places, from America to China, as the group has expanded. It now has more subsidiary companies than co-operatives. Mondragón has two employees for every co-op member. The result is a two-tier system. And when recession bites, non-member employees suffer most. They are already losing jobs as temporary contracts are not renewed. Like capitalist bosses, the Mondragón co-operativists must, indeed, occasionally handle strikes and trade-union trouble.
Executive pay is an issue, but in the other direction- former caps on it need to be raised to keep talent.
Mondragón used to cap managers’ pay at three times that of the lowest-paid co-operativist, for example. But it realised it was losing its best managers, and that some non-member managers were earning more than member managers. The cap was raised to eight times.
When there is a crisis, every firm (except repo agencies, I suppose) faces a crunch. I’m not sure it’s a bad thing that coops tend to be “less flexible.” If a social safety net can exist at the level of the firm, and decisions are made within that firm democratically, then that seems better than what happens in America, where unionized workers like those at GM are being demonized.
I think the challenges to cooperatives will ease in coming years. Global demand will not stay slack forever, and when the crisis is over, a lot of the competitive forces hurted coops will be pulled back because of the lessons from the crisis. Executive pay will probably recede from its pre-crisis “market” level. And, as the article points out, Mondragon’s “social glue” may make the firm and its employees all the stronger after the crisis.
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