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Mondragon Cooperative: An economic model above Capitalism, for individuals

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By Prachi Mishra

In most of the companies today, there’s a hierarchical managerial structure, which places the employees in a subservient position. Then, there are some companies, which follow the socialist agenda, i.e. the government making the decision for the company and deciding what is beneficial for the company.

These two models are the most common in business enterprises to earn profit.

Mondragon’s unique cooperative structure separates it from the rest of the global companies. Instead of giving authority to a selected few, Mondragon’s cooperative structure takes into account the decisions of its employees. It is owned and managed by the people working in the company.

Despite setting up a different structure from the rest, Mondragon Corporation Cooperative has become one of the biggest and the most successful global cooperative corporation today. Its total asset volume amounts to more than nine and half billion Euros.

The idea of Mondragon Cooperative is not about solely earning profit, it is more about the social good. The corporation also provides many non-monetary benefits, like access to education, free health care, and social security, which are much more important for some members than having higher salary.

Genesis of Mondragon Cooperative

The Mondragon Corporation Cooperative began in the early 1950’s in the Pais Vasco, a region in the North of Spain. The idea of its structure was conceived by Father Jose Maria Arizmendiarrieta. During that time, Spain was coping with economic difficulties, which Arizmendiarrieta believed could be resolved with community solidarity and action. He started imparting the necessary skills to create a corporation to the youth that would not only help to support themselves, but also the community.

Five of his students, Usatorre, Larrañaga, Gorroñogoitia, Otmaechea and Ortubay followed Arizmendiarrieta’s steps, and created the financial basis for Mondragon. They put their savings together to make a collective investment.

In order to increase the financial support, they went to seek aid from the public of the area. Every day, these five entrepreneurs would go to the bars and cafes, and talked to the villagers about their idea of creating a company that would focus not on only creating employment and profits, but most importantly would focus on the people of Mondragon.

They were successful in persuading the people of Mondragon as they loaned amount of 11 million pesetas, a huge amount for the Spain of 1959, to the five entrepreneurs. After raising the funds, the entrepreneurs opened their first factory called Ulgor, which is now called Fagor Electrodomesticos, which employed 24 worker members, and started manufacturing paraffin stoves and heaters.

Cooperative Structure of Mondragon Corporation

At present, Mondragon comprises of 218 operational bodies, all Cooperatives have the same unique basic structure.

This structure consists of a General Assembly, which consist of all the worker-members of the cooperative. This assembly has the power to nominate and dismiss the members of the second category of the cooperative structure, the Governing Council.

The Governing Council selects the members of the Management Council and make sure that all of the plans and objectives proposed by the General Assembly are correctly followed.

At the next level, there is a Social Counsel whose main function is to inform the members of the cooperative about all the issues and proposals that are going to be discussed during the annual meetings. Lastly, there’s a Management Council and the General Manager, which are business professionals, elected by the Governing Council to perform all the basic functions of the cooperative.

The corporation has also laid down certain principles for the workers, some of which are listed below:

1. Sovereignty of labor: Labor is the main factor for transforming nature, society and human beings themselves. As a result, the systematic recruitment of salaried workers has been abandoned, full sovereignty is attached to labor, the wealth created is distributed in terms of the labor provided and there is a will to extend the job options available to all members of society.

2. Participatory Management: The steady development of self-management and, consequently, of member participation in the area of company management which, in turn, requires the development of adequate mechanisms for participation, transparent information, consultation and negotiation, the application of training plans and internal promotion.

3. Payment Solidarity: Sufficient and fair pay for work as a basic principle of its management, based on the permanent vocation for sufficient collective social promotion in accordance with the real possibilities the co-operative has, and fair on an internal, external and MCC level.

4. Inter- Cooperation: As the specific application of solidarity and as a requirement for business efficiency, the Principle of Inter-cooperation should be evident: between individual co-operatives, between subgroups and between the Mondragón co-operative experience and Basque co-operative organizations, and co-operative movements in Spain, Europe and the rest of the world. (Content courtesy- www.mondragon-corporation.com)

How can one become a member of the cooperative?

The new member is required to pay a specific amount decided by the General assembly. It is around €12,000, which can be paid over a period of thirty months.

Is Mondragon’s cooperative model, the ideal business model?

In the cooperative everyone is treated as an equal and have the same power of their votes. In most of the corporations, where the work- force is treated only as a means of production, in Mondragon corporation power is provided to the work force.

NewsGram asked a few people whether Mondragon cooperative is an ideal model.

Himanshu Lohani, an IIM Bangalore alumnus said, “Yes I think it can be considered as an ideal because when employees have a major role in the decision making of the company, they are more willing to work harder.”

Anukriti Kumar, a management student echoed the same thought. She told NewsGram, “I won’t mind receiving a bit less salary, if my opinion is considered important during the decision making process of the company. I think India should also follow the same suit and try to adopt this model.”

However, Nripen Mishra, an Indian School of Business alumnus had a different point of view. He said, “I won’t consider it ideal as it too comes along with a set of disadvantages. Some shareholders might have more involvement with the project than the rest, however, regardless of their efforts; they still will have only one vote. Also it might get difficult for the cooperatives to attract investors who are primarily interested in earning profit through financial return.”

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