08051 Cooperatives
Labor can and will become its own employer through co-operative association. — Leland Stanford
On December 21, 1844, the Rochdale Equitable Pioneers Society opened the first cooperative store in the cotton mill town of Rochdale in northern England with a membership of 28. They had five items for sale — flour, sugar, oatmeal, butter, and candles. They were open two nights a week. Each member contributed one English pound as their membership share. Within ten years, 1,000 cooperatives operated under the Rochdale Principles in Britain, which became the ideological framework for the modern cooperative movement.
The modern “Statement on the Cooperative Identity,” adopted in 1995 by the International Cooperative Alliance, derives from the original “Rochdale Principles” adopted in 1844 by the Rochdale pioneers.
A cooperative is a business owned and democratically managed by its owners to provide a benefit to the owners.
Today, throughout the world we find several kinds of cooperatives. They differ based on who their members are (producers, consumers, workers, depositors, etc.)
Producer cooperatives — owned by producers, organized to market production and/or provide inputs to the producers.
Consumer cooperatives — owned by customers, organized to provide market access to customers.
Worker cooperatives — owned by the workers, organized to provide jobs to the workers.
Hybrid cooperatives — combinations of different kinds of cooperatives.
Housing cooperatives — a cooperative that owns a multiple unit housing complex.
Transportation cooperatives — a cooperative that owns some form of transportation and operates it for the benefit of its members.
Financial cooperatives — credit unions, mutual insurance companies, owned by depositors or policy holders and operating to provide various financial services to members.
All cooperatives require that members make a capital contribution to the cooperative. This buys the member a share in the cooperative. The principle is “one member, one share, one vote.” The members of the cooperative elect a board of directors who either hire or otherwise arrange for the management of the cooperative.
Cooperatives provide opportunities to people who may be otherwise excluded from economic participation. For example, students graduating from college in today’s uncertain economic environment may find that it is easier to start a new job, in the form of a worker owned cooperative, with friends and contacts they made during their school years, than to compete in the job market for scarce jobs from government and private employers.
The ICA estimates that about 750 million people worldwide are members of cooperatives.
Cooperatives can be an economic structure that can send investments forward into the future. They have perpetual existence (they outlive individual members) and their purpose is to provide a member benefit. This is different from a corporation, which exist to provide return to stockholders. They can invest in non-economic social and economic values.
1995 Statement on the Co-operative Identity
Definition A co-operative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise.
Values Co-operatives are values-based organizations that promote self-help, self-responsibility, democracy, equality, equity and solidarity. In the tradition of their founders, co-operative members believe in the ethical values of honesty, openness, social responsibility and caring for others.
Principles The co-operative principles are guidelines by which co-operatives put their values into practice.
1st Principle: Voluntary and Open Membership Co-operatives are voluntary organizations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, political or religious discrimination.
2nd Principle: Democratic Member Control Co-operatives are democratic organizations controlled by their members, who actively participate in setting their policies and making decisions. Men and women serving as elected representatives are accountable to the membership. In primary co-operatives members have equal voting rights (one member, one vote) and co-operatives at other levels are also organized in a democratic manner.
3rd Principle: Member Economic Participation Members contribute equitably to, and democratically control, the capital of their co-operative. At least part of that capital is the common property of the co-operative. Members usually receive limited compensation, if any, on capital subscribed as a condition of membership. Members allocate surpluses for any or all of the following purposes: developing their co-operative, possibly by setting up reserves, part of which at least would be indivisible; benefitting members in proportion to their transactions with the co-operative; and supporting other activities approved by the membership.
4th Principle: Autonomy and Independence Co-operatives are autonomous, self-help organizations controlled by their members. If they enter to agreements with other organizations, including governments, or raise capital from external sources, they do so on terms that ensure democratic control by their members and maintain their co-operative autonomy.
5th Principle: Education, Training and Information Co-operatives provide education and training for their members, elected representatives, managers, and employees so they can contribute effectively to the development of their co-operatives. They inform the general public — particularly young people and opinion leaders — about the nature and benefits of co-operation.
6th Principle: Co-operation among Co-operatives Co-operatives serve their members most effectively and strengthen the co-operative movement by working together through local, national, regional and international structures.
7th Principle: Concern for Community Co-operatives work for the sustainable development of their communities through policies approved by their members.
The Mondragon Cooperatives of Spain — an example of economic justice at work!
What has 120 different companies, 80,000 worker-owners, 43 schools, one college, does billions of dollars of business annually in manufacturing, services, retail and wholesale distribution, administers more than $5 billion in financial assets?
Answer: the Mondragon Cooperatives of Spain.
In 1941, a bishop sent a young priest to teach in a vocational school in Spain's "Basque Country." In addition to the technical curriculum, young Father Jose Maria Arizmendiarrieta taught economic justice, the primacy of labor over capital, and solidarity to his students. As a result of his counsel and teaching, some of the students began a small cooperative that built kerosene stoves. In 1959, they started what we would today call a credit union.
Today, the associated Mondragon Cooperatives manufacture automobile parts, electronic components, valves, taps, appliances. They have a full line of retail outlets (small & large) offering consumer products, food, appliances, and a wholesale food business catering to restaurants. Their bank has more than 100 branches. They offer a full range of insurance, and take care of their own social security and health insurance programs.
In most for profit businesses, capitol hires labor. For the Mondragon cooperatives, capital is something they rent to benefit the worker-owners.
To Americans, this sounds like an Employee Stock Ownership Plan, but the Mondragon model is not only about distribution of the profits, it is about the control of the business.
Workers — not the money men — elect the management and the managers are part of the cooperative process in the enterprise. Each enterprise has a social committee that considers issues of health, safety, environment, and the social responsibilities of the enterprise. If they need money they borrow capital. They don't sell stock for financing except for the initial membership share bought by each worker owner. All new employees become worker owners through the purchase of a membership share.
A new cooperative begins with a group of friends. Experience in starting 120 businesses over a 40-year period has taught the Mondragon cooperators that the pre-existing bonds of friendship are a good basis for building a productive working relationship. The Mondragon association provides business and marketing research and assistance; their bank provides capital. The workers themselves must invest some of their own money, either as an upfront contribution or as deductions from wages paid over a 2-year period (about $5,000). Their bank sticks with the new co-op until they can go it alone; if the business gets into trouble, various strategies come into play, including waiving interest, suspending payments, even loan forgiveness. They may assist the group to move into another line of business or work. Because of these economic solidarity activities, since 1956 they have had only one total failure of a cooperative.
Mondragon coops donate ten percent of corporate profits to charity. Forty percent are retained by the cooperative to be used to benefit the "common good" of the cooperative (research, development, job creation, etc.). The balance of the profits goes into capital accounts for the worker owners. These funds may be borrowed against at the cooperative's bank at low interest rates, and are important parts of the social security arrangements.
Democracy in the workplace? Capital at the service of Labor? It all sounds idealistic except for the fact that it is actually working, profitable, and growing. The cooperative business model is not a stranger in the United Stats, most rural areas have farmers’ cooperatives and there are credit unions everywhere. The Mondragon model of worker-owners is a different twist to what we find around here.
If we want —
- economic development,
- to help people reach their full development as human persons,
- benefits for the common good, and
- to enhance the dignity of the human person,
— we have to talk about practical ways to implement these ideals. This is what the Mondragon Cooperatives of Spain have done. They have a model that can be implemented everywhere.
Basic Principles of the Mondragon Cooperatives of Spain
Any direct quotes from Mondragon texts are in quotes (in ""). The rest is my summary of the Mondragon text.
I. OPEN ADMISSION The Cooperatives do not discriminate on the basic of religious, political, ethnic, or sex when it comes to becoming a member of the Cooperative.
II. DEMOCRATIC ORGANIZATION All authority is vested in the "general assembly," which consists of all the worker owners of the enterprise, one person one vote. The general assembly elects the "Governing Council,” which would be like the Board of Directors, which appoints (and removes) the organization's management.
III. SOVEREIGNTY OF LABOR"In the MCC Co-operatives it is understood that Labor is the main factor for transforming nature, society and human beings themselves. As a result, Labor is granted full sovereignty in the organization of the co-operative enterprise, the wealth created is distributed in terms of the labor provided and there is a firm commitment to the creation of new jobs. As far as the wealth generated by the Co-operative is concerned, this is distributed among the members in proportion to their labor and not on the basis of their holding in Share Capital. The pay policy of MCC's co-operatives takes its inspiration from principles of Solidarity, which are materialized in sufficient remuneration for labor on the basis of solidarity."
Worker owners receive competitive and just salaries and dividends based on the profitability of the co-op.
IV. INSTRUMENTAL AND SUBORDINATE NATURE OF CAPITAL Generally, a corporation sells shares of ownership and management to raise capital, and then hires labor. The Mondragon Cooperatives do not sell shares in order to raise capital. Here, the workers own the enterprise and the management and rent the capital.
V. PARTICIPATORY MANAGEMENT "This Principle implies the progressive development of self-management and, consequently, of the participation of the members in business management. This requires: (1) The development of adequate mechanisms and channels for participation. (2) Transparent information with respect to the performance of the basic management variables of the Co-operative. (3) The use of methods of consultation and negotiation with the worker-members and their social representatives in those economic, organizational and labor decisions which affect them. (4) The systematic application of social and professional training plans. (5) The establishment of internal promotion as a basic means of covering positions with greater professional responsibility."
VI. PAYMENT SOLIDARITY "The Mondragón Co-operative Experience declares sufficient payment based on solidarity to be a basic principle of its management. Solidarity is manifest both internally and externally, as well as at the Corporate level."
VII. INTERCOOPERATION The Cooperatives cooperate with each other, with other cooperatives in the area, and with national and international cooperative organizations.
VIII. SOCIAL TRANSFORMATION The Cooperatives acknowledge a duty to contribute to the common good: (1) by reinvesting a high proportion of their profits, including regular investments in community funds for job creation; (2) 10% of the net profit of the Cooperatives is donated to charitable organizations; (3) taking care of their social security, unemployment, and health insurance requirements (through a cooperative owner by the other cooperatives; and (4) being active in their community.
IX. UNIVERSALITY "The Mondragón Co-operative Experience, as an expression of its universal vocation, proclaims its solidarity with all those who work for economic democracy in the sphere of the Social Economy and supports the objectives of Peace, Justice and Development, characteristic of the International Co-operative Movement. Likewise, through OTALORA, which is our Business and Co-operative Training Centre, we try and disseminate co-operative culture on the basis of our own social-economic experience, developed over the last 40 years."
X. EDUCATION "Education and Training have played a decisive role in the creation and development of the Mondragón Co-operative Movement. Its founder and main driving force, the priest José María Arizmendiarrieta, was always quite clear that 'education, understanding as such the complex of ideas and concepts adopted by a man, is the key to the development and progress of a people'. Insisting on this idea, Father Arizmendiarrieta liked to repeat 'that education is the natural and indispensable cornerstone for the promotion of a new humane and just social order' and that 'knowledge has to be socialised to democratise power'.
"Therefore, on the basis of this approach, the first thing he did when he came to Mondragón was to create the Polytechnic School in 1943 (today Mondragón Eskola Politeknikoa), which during all these years has been the main source of managers and skilled workers for our co-operatives."