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Mondragón and the System Problem

fagor(with Thomas Hanna, originally published at Truthout)

As America moves more deeply into its growing systemic crisis, it is becoming increasingly important for activists and theorists to distinguish clearly between important projects and “institutional elements,” on the one hand, and systemic change and systemic design, on the other. The recent economic failure of one of the most important units of the Mondragón cooperatives offers an opportunity to clarify the issue and begin to think more clearly about our own strategy in the United States.

Mondragón Corporation is an extraordinary 80,000-person grouping of worker-owned cooperatives based in Spain’s Basque region that is teaching the world how to move the ideas of worker-ownership and cooperation into high gear and large scale. The first Mondragón cooperatives date from the mid-1950s, and the overall effort has evolved over the years into a federation of 110 cooperatives, 147 subsidiary companies, eight foundations and a benefit society with total assets of 35.8 billion euros and total revenues of 14 billion euros.

Each year, it also teaches some 10,000 students in its education centers and has roughly 2,000 researchers working at 15 research centers, the University of Mondragón, and within its industrial cooperatives. It also actively educates its workers about cooperatives’ principles, with around 3,000 people a year participating in its Cooperative Training program and 400 in its Leadership and Team Work program.

Mondragón has been justly cited as a leading example of what can be done through cooperative organization. It has evolved a highly participatory decision-making structure, and a top-to-bottom compensation structure in a highly advanced economic institution that challenges economic practices throughout the corporate capitalist world: In the vast majority of its cooperatives, the ratio of compensation between top executives and the lowest-paid members is between three to one and six to one; in a few of the larger cooperatives it can be as high as around nine to one. Comparable private corporations often operate with top-to-median compensation ratios of 250 to one or 300 to one or higher.

Although it has been criticized for violating its cooperative principles through somewhat “imperial” control of some of its foreign operations, for its use of non-cooperative labor, and for a less-than-active concern with environmental problems, in recent years Mondragón has begun to address deficiencies in these areas.

Bankruptcy for Fagor Electrodomésticos

Mondragón Corporation’s historically most important unit is Fagor Electrodomésticos Group, which makes consumer appliances – “white goods” such as dishwashers, cookers and other related household items. It is the fifth-largest manufacturer of such products in Europe. It employs roughly 2,000 people in five factories in the Basque region and has and additional 3,500 in eight factories in France, China, Poland and Morocco. Its direct predecessor (ULGOR) was the first-ever Mondragón cooperative – established in 1956 by five young students of José María Arizmendiarrieta, the spiritual founder of Mondragón cooperative network.

Mondragón recently announced that Fagor was failing and that the company would be filing for bankruptcy protection. Ultimately, Fagor was unable to find financing to pay off debts of around $1.5 billion related to a 37 percent slump in sales since 2007 that resulted from Spain’s economic crisis and housing market collapse. Under Spanish law, the company now has four months to negotiate with its creditors – which include the Basque government, banks and others – and formulate a restructuring plan.

As part of any restructuring or liquidation, Mondragón will provide jobs and income security for a certain period for some its workers in Spain. This is one of the cooperative network’s great advantages. It has announced that its internal insurance company Lagun Aro will pay 80 percent of the cooperative member’s salaries for two years and the corporation will strive to relocate as many employees as possible to other cooperatives in the network.

The fate of the roughly 3,500 non-Spanish wage laborers (i.e. not cooperative members) in other countries, however, is unclear.

Some Specific Problems

Given its importance, we are certain to see any number of economic reports on the specific problems that created the failure of Fagor. The larger questions posed by the failure, however, are the relationship of large-scale economic institutions to the market in any system, and the lessons for long-term systemic design for people concerned with moving beyond the failings of corporate capitalism and traditional socialism.

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How to Democratize the US Economy

The following adapted excerpt of my book What Then Must We Do? appeared in the 10/28 edition of The Nation

Everyone knows the United States faces enormous challenges: unemployment, poverty, global warming, environmental decay—to say nothing of whole cities that have essentially been thrown away. We know the economic system is dominated by powerful corporate institutions. And we know the political system is dominated by those same institutions. Elections occur and major fiscal debates ensue, but most of the problems are only marginally affected (and often in ways that increase the burdens).

The issue is not simply that our situation is worrisome. It is that the nation’s most pressing problems are built into the structure of the system. They are not unique to the current economic slump or the result of partisan bickering, something passing in the night that will go away when we elect forward-looking leaders and pressure them to move in a different direction.

Not only has the economy been stagnating for a long time, but for the average family, things have been bad for a very long time. Real wages for 80 percent of workers have not gone up more than a trivial amount for at least three decades. At the same time, income for the top 1 percent has jumped from roughly 10 percent of all income to more than 20 percent. A recent estimate is that a mere 400 individuals in the United States own more wealth than the bottom 180 million Americans taken together.

Unfortunately, what we call traditional politics no longer has much capacity to alter most of the negative trends. To be clear: I think projects, organizing, demonstrations and related efforts are important. But deep down, most people sense—rightly, in my view—that unless we develop a more powerful long-term strategy, those efforts aren’t going to make much of a dent.

 Read the rest at The Nation

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Five years after the big bailout: Time to begin building a “new economy”

new-economy-week-fb-banner Five years ago today, on October 3rd, 2008, the federal response to the financial crisis began with the signing into law by then President Bush of the Troubled Assets Relief Program (TARP). After a half-decade of emergency measures—including not only the bailout, but the temporary nationalization of major auto manufacturers and round after round of “quantitative easing”—have we managed to put the economy back on a secure footing?

Unfortunately, the clear answer is that we have not.

To the consternation of both the public and the economists, this “recovery”—and the two which preceded it—have been “jobless recoveries.” While the government measure of the unemployment rate has declined to a modest extent, the absolute percentage of the population employed has remained more or less constant since 2009, as people resign themselves to joblessness and leave the labor force. Furthermore, even this anemic and halting climb back towards increased employment has been vastly uneven: a massive gap exists between the unemployment rate of lower income families (21%) and the rate for higher income families (3.2%). 15% of Americans—nearly 1 in 6—are seemingly consigned to live in poverty. Meanwhile, the banks that were “too big to fail” in 2009 are, despite scandal after scandal, bigger than ever. And while wages stagnate, corporate profits and the income of the 1% is soaring.

The title of my recent book, taken from Tolstoy, is straightforward: What then must we do? For some, the answer is simply that we need to remove or neutralize the conservative forces holding back a sensible Keynesian economic policy; a little more stimulus, a little more public spending, a few reforms around minimum wages and everything will be back on track. Yes, this would be better than nothing. But when we look soberly at the long-term trends, it is clear that we face a systemic crisis: a deep failure of the institutional basis of the traditional strategy for holding corporate capitalism in check. Poverty rates, income inequality trends, global warming, incarceration rates—these and many other three and four decade trends began long before the recent House Republican difficulties—and they are all but certain to continue on their current course long beyond the political problems of the moment.

In short, what we need is not just simply more pressure for reform around the edges of the system, but a movement to build a new economy, a movement that will build steadily over time as the civil rights, feminist, environmentalist and, indeed, conservative movements built up long term strength, step by step, until major political power was achieved.

Thankfully, a “New Economy” movement is beginning to emerge all around us, and part of helping it grow is making it more visible. A recent debate on new banking institutions appeared yesterday in the New York Times. Annie Leonard’s just released new video The Story of Solutions is a powerful followup to her Story of Stuff that highlights transformative work in the new economy. Worker-owned co-ops are developing in many areas. Even the august Academy of Management—an organization of leading business school professionals—opened a serious debate on the future of capitalism at their annual meeting this past summer.

And importantly the New Economy Coalition is organizing a week of events this month to highlight the activity bubbling up at the grassroots across the country. A pilot for what they hope to become an annual event, “New Economy Week” will bring together communities across the country in local celebrations, screenings, and lectures. (I will be speaking in Amherst and Great Barrington, Massachusetts on October 10th and 11th, and answering questions online for a national audience via the website Reddit on October 15th.)

Building effective movements for change rarely, if ever, happens overnight: The New Economy Week is a small but necessary step towards the one we need right now.

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What Then Can I Do? Ten Ways to Democratize the Economy

Read my article with Keane Bhatt on Truthout or here on garalperovitz.com.

And find out how to host a community screening of my new film, The Next American Revolution or organize a reading group around What Then Must We Do? here.

whatthencanido

The richest 400 Americans now own more wealth than the bottom 180 million taken together. The political system is in deadlock. Social and economic pain continue to grow. Environmental devastation and global warming present growing challenges. Is there any path toward a more democratic, equal and ecologically sustainable society? What can one person do?

In fact, there is a great deal one person working with others can do. Experiments across the country already focus on concrete actions that point toward a larger vision of long-term systemic change – especially the development of alternative economic institutions. Practical problem-solving activities on Main Streets across the country have begun to lay down the elements and principles of what might one day become the direction of a new system – one centered around building egalitarian wealth, nurturing democracy and community life, avoiding climate catastrophe and fostering liberty through greater economic security and free time.

Margaret Mead famously observed: “Never doubt that a small group of thoughtful, committed citizens can change the world; indeed, it’s the only thing that ever has.” Some of the ten steps described below may be too big for one person to take on in isolation, but many are exactly the right size for a small and thoughtful group committed to building a new economy, restoring democracy and displacing corporate power.

As the history of the civil rights movement, women’s movement, and gay-liberation movement ought to remind us, it’s precisely actions of this sort at the local level that have triggered the seismic shifts of progressive change in American history…. Read more »

 

 

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Strange days: “Capitalism in Question” at the Academy of Management

It’s hard to judge the true depth of crisis developing in the foundations of our political and economic system when you are living, day in and day out, in the middle of it.  But it is clear that something deep is fundamentally broken with capitalism, and that fixing it requires thinking seriously about what might emerge as what can probably only be called “a next system.”

This is not a radical judgment. Perhaps surprisingly, you can find this perspective resonating within the most powerful citadels of the system itself.  Klaus Schwab, the founder of the World Economic Forum, for instance, introduced a recent Davos meeting of the global financial and political elite with these words: “Capitalism, in its current form, no longer fits the world around us [...] We have failed to learn the lessons from the financial crisis of 2009 [...] A global transformation is urgently needed and it must start with reinstating a global sense of social responsibility.”

Even more encouraging than Schwab’s informal comment is the consideration serious business and financial experts are giving to questions about the future of capitalism and the long term possibility of a successor system.  I have found receptive audiences for my work on this subject (and my book What Then Must We Do?) at major conferences dedicated to socially responsible investing like SOCAP and SVN.   I have also found that many people who have spent the last decades pioneering innovative projects that put their business acumen to use in the service of economic and social justice are beginning to realize that the system itself may be broken. And that, if so, we need to begin to think about alternatives that might be developed, even if over the long haul.

I admit that I was a bit taken aback, however, when I was asked to deliver a keynote address on August 11th at the annual Academy of Management meeting whose theme this year is, quite simply:  “Capitalism in Question.”  Read More »

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