Essays Toward A Principled Economics

Mose Durst Ph.D.

7. Worker Ownership

The previous two chapters, on poverty and fair trade, have addressed the issue of full and fair participation by all people in the wealth creation process as a foundation for Principled Economics. Without the ability to create wealth, individuals are limited in one aspect of their divine creativity; families suffer poverty and potential breakdown; communities hold together only precariously. Principled Economics, however, emphasizes the justice of fair participation as only a basic element of a healthy economic system: one which recognizes the divine nature of the person and the imperative for individuals to serve the common good.

A principled economic system also creates conditions by which individuals can fulfill their unique creativity while simultaneously creating value for family, community, the environment, and the larger good of society. The central purpose of economic activity, from a Principled Economics point of view, is the genuine love for the good of another. Although this is the principled ideal of all human activity, economics focuses on a specific arena, the creation of material wealth, and has its own unique dynamics. Nevertheless, the Principled Economics question for economic activity always asks: does this activity contribute to the creation of a virtuous person and a virtuous society?

In addressing this question, principled economics makes the assumption that a healthy economic system must be guided by classical religious, ethical, and cultural ideals: in the case of Western culture by the Judeo-Christian norms. Thus, economic activity must be guided by profound ethical values that lead one to consider long-term concerns, deep caring relations with others, and broad consequences for specific actions. Religious principles point toward a common good, where one must consider spiritual and ethical wellbeing as a basis for material profit.

If economic activity fails to be guided by the principled framework just outlined, then we have broad spiritual and material poverty, where even material wealth is accompanied by exploitation, alienation, resentment, and the hostility of the many toward the few who seem to prosper. Self-interest narrowly understood becomes the basis for economic creativity. Economic systems are then created which favor the interests of the few and exclude the many. The destructive effects of unprincipled economics are seen in the lives of individuals, families, and communities.

The solution to poverty, from a principled economics viewpoint, involves providing credit to the poor so they can develop their own businesses, the source of wealth creation. As businesses develop, the poor have the opportunity to feed and educate their families, to contribute to the wellbeing of their communities, and to offer their unique contributions to civilization. Fair trade, we saw, is a complement to the extension of credit to the poor. Once craftspeople and farmers produce their crafts and commodities, they need access to the markets of the developed world. If this access is blocked or heavily skewed against them, they need help from the various organizations described in the previous chapter. Fair trade is the hallmark of economic justice, in which each person is treated fairly and equally. We speak here of equal opportunities, not equal results.

Along with democratization of credit and fair trade, worker ownership is a third component of Principled Economics that can provide the opportunity for all people to create wealth beyond the limited possibilities that are now available. Although worker ownership can take many forms, it must provide the basis of wealth creation through the ownership and management of productive assets. Worker ownership of businesses may not be a guarantee that businesses will be successful. However, it is a guarantee that all people will have a significant opportunity to exercise economic freedom.

The ownership of productive assets, as opposed to consumer goods, in the United States and almost all other countries is limited to just a small percentage of the population. Productive assets include land, buildings, machinery, and the numerous other capital goods that are used to create additional wealth. Most people earn income through wages and, in one sense or another, are laborers who are hired for their labor. A Joint Economic Committee of Congress in a 1986 report indicates that a mere 19 percent of Americans own 58 percent of all individually owned corporate stock in the United States.1

Although some individuals may earn Midas-like fortunes from their wages, most workers are limited in their ability to earn much more than the going market rate for their salaries. This is especially true in developing nations, where a small number of people own the wealth necessary for new investment opportunities, while the vast majority of people are limited to incomes from wages determined by the labor market. In our discussions of poverty, for example, we have seen how the poor do not own the capital or capital goods by which they can earn their way out of poverty.

The historical conflict between the owners of the instruments of production and the workers is a central thesis of Marxist economics. When communist revolutions sought to overthrow the capitalist class in the name of the workers, the state -- ruled by a few -- exchanged places with the capitalist elite and usually made things worse for the workers. They were even more limited in their ownership of productive assets and in their ability to create wealth.

In capitalist countries like the United States, a middle class developed where the standard of living is relatively high, although there are large differences between the wealth of the top ten percent and the bottom forty percent. This middle class is somewhat of a misnomer in capitalist-like developing economies, where one or two percent of the population swim in luxury while more than ninety percent face the treadmill of subsistence wages.

A further consequence of limited ownership, beyond the restrictions to wealth creation, is the conflict between managers, the representatives of owners, and the workers. Traditionally this has been an adversarial relationship, one which has severely inhibited the creativity of workers and diminished the productivity and efficiency of businesses. From a Principled Economics viewpoint, the interactions within the workplace should enhance the quality of life for all who work and simultaneously liberate the wealth creation process of productivity.

Since economic creativity is one dimension of our divine nature, as we are created in the image of God, Principled Economics stresses the need for opportunities of ownership so that all may share in the possibilities of wealth creation. In addition, with workers and managers as equal owners, new possibilities of cooperation open up that not only can enhance the quality of work life but can promote the productivity of business. Worker ownership, then, is a means by which each person can benefit as an individual while also contributing to the common good -- both materially and spiritually -- of the larger society.

Louis Kelso, an attorney and economist, devoted most of his adult life to promoting worker ownership. Along with Mortimer Adler, the philosopher, Kelso authored several seminal books explaining the importance of broad ownership of capital, and thus wealth, as a corresponding principle to political liberty and equality. Just as the founding fathers of the United States were concerned about concentrations of political power, so that power would both corrupt its possessors and abuse those who were powerless, so Kelso was concerned about concentrations of economic power. He understood that concentrations of economic power close off opportunities for those without wealth, and that economic power leads to political power. We need only look at the wealth of the U.S. senatorial candidates in California during the 1994 election to understand his point. The candidates had personal wealth estimated between 50 million and 200 million dollars, millions of which were spent in their own campaigns.

Although Kelso developed many technical plans by which employees could finance purchases of companies through the future earnings of the business, he was most concerned with the principles of freedom, equality, and economic justice. In The Capitalist Manifesto, he and Adler pose the question: "How shall industry be organized so that no man works primarily for the good of another, and so that each man has some voice in the conduct of economic affairs analogous to the voice he exercises in political affairs as a citizen."2 They then spin out a vision of worker ownership as an answer to the question:

Let us, then ,...imagine a society in which machines do all or most of the mechanical work that must be done to provide the wealth necessary both for subsistence and for civilization. Let us imagine, further, that in this society, every man, or every family, has a sufficient share in the private ownership of machines to derive sufficient subsistence from their productivity. In this automated industrial society, each man, as an owner of machines, would be in the same position as an owner of slaves in a slave society. As a capitalist, he would be an economically free man, free from exploitation by other men, free from destitution or want, free from the drudgery of mechanical work -- and so free to live well if he has the virtue to do so.3

As early as 1958, then, Kelso was arguing for a more universal capitalism as an answer to poverty and injustice. Rather than communism, socialism, or welfare state capitalism, as a means to wealth distribution and economic security, Adler reasoned that there was not enough genuine capitalism, where productive capital would be owned widely. In a later book he would say that "only a very small percentage of American households are capitalist, for consumer assets are what most people possess."4

Adler then proposes in his writings numerous practical methods by which employees can become owners of the instruments of production. He sees not only a distant vision of the future, but he offers incremental steps that bring immediate results toward economic freedom and justice. Just as Mohammed Yunus of the Grameen Bank devised methods of extending credit to the poor who had no collateral, and enabled them to acquire capital, so Kelso devised methods where employees in an industrial society could similarly obtain credit to purchase sophisticated instruments of production.

Kelso's ideas of worker ownership have been developed through a number of organizations. The Center for Economic and Social Justice, for example, founded by economist-attorney Norman Kurland, provides a religious framework by which the importance of worker ownership is defined:

CESJ promotes understanding and refinement of the theory of economic justice first formulated by Louis O. Kelso and Mortimer Adler. This theory, among other things, reveals the essential connection between expanded capital ownership and democratized access to capital credit. CESJ's conceptual framework and its moral principles are in harmony with the universal concepts of economic and social justice embraced by all the great spiritual and moral leaders of history.5

Further, the highest responsibility of each person is to pursue absolute values and to promote economic and social justice in his personal life and in all his associations with others.6

As with the writings of Catholic theologian Michael Novak, CESJ emphasizes that economic creativity is one aspect of the divine creativity that is each person's patrimony. For this creativity to be exercised, personal property must be available to all, and the credit to purchase and develop personal property must likewise be available to all. A role of government, then, is to make the possibilities of ownership and access to credit as widespread as possible. Further, as economic power is decentralized, democracy is strengthened as political freedom is coupled with genuine economic freedom. With these freedoms operating upon a foundation of religious values, which acknowledge the dignity and sacredness of individuals, families, and communities, economic and social justice become more substantial for everyone.

The problem of poverty for the CESJ is essentially a problem of ownership. As wealth is concentrated in the hands of relatively few, in the United States and more so in other nations, the mass of people are excluded from capital ownership. Without massive redistribution of wealth, but with major initiatives to increase ownership and access to credit, poverty can be eliminated. The fruits of the earth belong to everyone, and the great religious traditions teach us that social and economic justice demand that each should have access to and enjoyment of theses fruits. Individuals as well as institutions, however, must respond to the demands of justice.

Individuals may embody the personal virtue of justice, but may do so in the midst of corrupt institutions which work against social justice. Institutions, however, must be transformed so that they promote what is genuinely beneficial for the individual, who is created in the image of God, and other institutions created by such individuals. Most religious institutions, for example, may wave the banner of love as their purpose, but as institutions they may ignore, deny, and crush the creativity of individuals, all in the name of love. Perhaps religion, not politics, is the last refuge of a scoundrel. After all, the false Jewish messiah Sabbatai Tsvi, who became an apostate to Islam, wrapped himself in a Torah and enacted a marriage ceremony with it, thus giving further evidence of his messiahship.

CESJ explains in its founding principles:

Social justice is the virtue which guides us in creating those organized human interactions we call institutions. In turn, social institutions, when justly organized, provide us with access to what is good for the person, both individually and in our association with others. Social justice also imposes on each of us a personal responsibility to work with others to design and continually perfect our institutions as tools for personal and social development.
CESJ also points to how its principles could aid United States foreign policy in promoting democracy throughout the world. Usually, foreign aid is given to a foreign government or earmarked for a particular project in a nation. This money will usually end up in the hands of the wealthy few. This is also true for most foreign aid loans. Even when investment in foreign projects or loans by private banks is urged by the U.S. government, rarely does this money become available to a great number of people. Only by promoting worker ownership and more democratic access to capital can the U.S. promote economic justice, political stability, and democracy.
Just such an example is being promoted through the Solidarity movement in Central America. The movement began in the 1980s as an alternative to much of the revolutionary violence in the region. Workers and employers were urged to initiate a process whereby credit could be extended to employees through the future profits of a company. The employees could then purchase the business and become worker-owners, who were empowered to build a base for personal capital wealth. The movement draws upon the principles advanced in Catholic social thought, specifically the papal encyclicals that support worker ownership as a moral and practical alternative to communism.
The Solidarity movement works closely with CESJ, and it shares similar goals:
(1) To convert the private corporation into an example of human solidarity;
(2) To better worker-employer relations and productivity to benefit employees and the employer;
(3) Promote social and economic justice within the workplace and educate workers on how a free market economy functions;
(4) Provide integral services to all employees, their families and neighboring communities; and
(5) Stimulate the formation of capital investments, increase savings and create new jobs while simultaneously giving workers a true and significant vested interest to defend free enterprise as owners of productive private property capital assets.8

In the United States, worker-ownership may not have prevented revolutionary violence, but it does stimulate a new kind of vision for worker-management relations. From the newspaper strike in San Francisco (November 1994), where indeed there was violence between workers and management, to the baseball strike of the summer of 1994, where hostility and nastiness characterized negotiations between employees and baseball club owners, management-worker relations have usually been defined as adversarial. Each party must be vigilant so that neither is abused. Worker-ownership, however, opens up new possibilities for worker-management relations.

Dawn M. Kurland, at the CESJ, for example, has written extensively about how shared values, shared interest, and a cooperative vision of worker-management relations can replace the traditional conflict model. If workers and managers are equal owners in a business, the shared interest can lead to mutual benefit for workers and managers. Moreover, decisions would be made so that the long-term interests of the workers and the business would be paramount. Obviously, bad decisions could still be made, however a more constructive process would be set in motion toward solving problems for everyone's benefit.9 Below, we will look more precisely at how and under what conditions.

Where the Center for Economic and Social Justice stresses the vision of worker-ownership that is rooted in religious ideals of justice, the National Center for Employee Ownership, which cooperates with the CESJ, focuses on the nuts and bolts of setting up ESOPs in specific companies. In my interview with Corey Rosen, the executive director of the NCEO, he explained that helping companies become more efficient and profitable goes a long way in persuading them about the value of social equity. In fact, Rosen's books on worker-ownership wax poetic about the virtues of ESOPs, but he will go out of his way to illustrate when ESOPs will not be successful.

They will not be successful, for example, when workers are not educated constantly about the function of managing a company. When workers own less than 100 percent of a company, they must still be treated like owners, and educated accordingly, if the ESOP is to prosper. Moreover, ESOPs are not often successful when they are used as a last gasp effort to rescue a failing company. If in Eastern Europe ESOPs have been highly touted as a means of democratizing socialist economies, they must still function as genuine ESOPs, with real worker participation and control, rather than a shell for immediate ownership distribution which then congeals into the hands of former managers. Finally, if ESOPs are used only as a technique for immediate tax savings, they will not be as successful as when workers actually manage their companies.

Rosen explains that there are now 15 million employees in over 15,000 U.S. companies that are involved in some type of ESOP.10 The NCEO has done extensive studies of many of these companies and draws conclusions such as the following:

The first of the before and after studies was performed in 1986 by Michael Quarrey for the National Center for Employee Ownership (NCEO) and is summarized in detail. Quarrey compared the before and after performance of 45 employee ownership firms, gathering data for five years before and after their plans were established. Each employee ownership firm was carefully compared to at least five competitors for sales and employment figures. Quarrey found that the employee ownership companies did perform better than their competitors before their plans were started but did better still after the plans were in place. The average sales growth was 1.89 % per year better before the plan, but 5.3 % better after; the employment growth was 1.21 % per year better before and 5.05% after. When Quarrey looked more closely at these data, however, he found that most of this difference was found in those companies practicing participative management styles, as measured by surveyed responses. These companies showed an 8-11 % increase in their post-plan performance relative to their pre-plan numbers. No other variables had a consistent impact on the relationship between ownership and performance.11

When Dawn Kurland speaks of shared values between workers and managers, cooperation rather than conflict as a basis for management, one would expect that a company that was 100% owned by employees would reap the greatest benefits from such a system. When it comes to Avis, just such a company, perhaps the most well known ESOP, we find the following:

Avis employees each location elect peers to an employee participation group (EPG). The EPGs meet every month to discuss any issues relating to customer service. While they can only recommend, managers are urged to accept their ideas, rejecting only those where there are very powerful reasons to do so (and letting employees know what those are). Avis employees have recommended the company buy different cars (they did, very successfully), change the layout of car return operations, start no-smoking car policies, change local specials, and thousands of other large and small ideas. In its first four years as an ESOP, Avis' stock quadrupled.12

Another 100% employee-owned company, less well-known than Avis, is Fastener Industries, an equipment manufacturer in Ohio. With 120 employees and sales of around $11 million, Fastener was sold to its employees by the Whelan family, the original owners. With a loan from the National Cooperative Bank, the employes were able to finance the purchase and take control of the company in 1980. The employees elect their own Board of directors, who in term appoint administrators to operate the company. "Voting is done on a oneshare / one vote basis, and ownership of the company is widely diffused..."13 Aside from being a profitable company, Fastener has developed a quality of work-life that develops individual potential, worker solidarity, and -- as one must imagine -- the quality of family and community life:

And how do Fastener's employees feel about being the owners of their company? The National Center for Employee Ownership surveyed the company's employee-owners recently X1986], and concluded that Fastener's workforce scored extremely high on work motivation and job satisfaction.

A walk through one of Fastener's plant floors confirms the Center's findings. "For me, it's basically like having my own business," says Jim Carroll, the manager of the plant. "Not only do we all work harder, we've seen our workmates retire with sizeable sums of money, and that's a tremendous incentive. With the ESOP, just about everybody has the opportunity to grow to their full potential," adds Tom Kwiatkowski, tool and die maker and ESOP Committee Member. "Apart from the financial rewards, we now feel that our advancement is based on our achievement, not just the whim of an owner or supervisor."

And because it's a worker-owned company, Fastener imparts a cooperative mentality not often found in conventially-owned for-profit corporations. "We're all in this together and we're all accountable to each other," says Paul Lake, Traffic Manager. "It's our money we're spending, and our investment we have to protect. When something doesn't work, we're all involved in fixing it, because if the problem isn't solved, we're the ones losing money."

Another form of worker ownership, closely related to the ESOP, is the cooperative. Just as health food shops were often viewed as a quirky offshoot of counter-culture communities, so cooperatives have been seen as ideological pipe dreams with little hope of success or longevity. Well, health food stores are now respected shops in many malls, or their products have been incorporated into the local supermarket. Cooperatives, in general, have not yet been as successful as health food stores, but they address principles of worker-ownership and of economic and social justice, and there is at least one association of about 200 cooperatives that is an extraordinary success with significant longevity.

In the Basque country of Spain is the little-known yet highly successful association of cooperatives called Mondragon. In 1956 a Roman Catholic priest, Father Jose Arizmendi, with a vision both moral and economic, initiated a small industrial cooperative with five of his students. Although Father Arizmendi never had an official position within the initial cooperative or in the almost 200 cooperatives that have developed out of this original one, he provided the vision and could articulate the practical framework by which the cooperatives could develop and prosper.

Drawing upon the historical cooperative and industrial tradition of the Spanish Basque country, and integrating his understanding of Catholic social thought, not without criticism of the Roman Catholic Church itself, Arizmendi was possessed of a vision of a just and moral society. His famous quote, repeated in almost every study of Mondragon, is, "The economic revolution will be moral or it will not be at all. The moral revolution will be economic or it will not be at all."15 We must remember that Arizmendi was responding to the economic and moral poverty that pervaded Franco's Spain at the time.

As a priest, Arizmendi understood the sacred value of each individual life and also the necessity to serve others through Christian love. His ideal of work, consistent with papal encyclicals and Catholic social thought, was that its purpose should be self-realization and, simultaneously, service to the common good. Neither the individual nor the society should be diminished by economic activity. On the contrary, Arizmendi stressed human values, derived from a religious core, as the framework by which one was to build economic institutions. Hence, the revolution must be moral. However, it must also be economic because work and wealth creation pervade so much of life's activities.

Unlike many social and religious movements that are initiated by a charismatic leader, one who often assumes the position of greatest power, makes all important decisions, and neglects the real, concrete lives of followers, Arizmendi knew how to offer himself without sacrificing or misusing others. He would constantly speak about his vision, but he would trust that others would take the best of it and apply it in their own unique way. Remarkably, he encouraged openness and honest criticism -- even of or especially of leaders, including himself. Again, unlike many leaders who stifle others and demand some version of "absolute obedience," Arizmendi had enough true human humility and belief in others to acknowledge that his advice might be wrong. Would that any of our leaders could be so wise.

Fundamental to Arizmendi's vision was the belief that moral values could enhance the efficiency of technical and economic activity. His moral philosophy, then, was not an appendage to business activity, or pious platitudes to justify the creation of wealth and power. Rather, his was an integrated vision of the moral and the economic, a principled vision, with the well being of the worker in relationship to his community as an inseparable reality. As Arizmendi explains:

A company cannot and must not lose any of its efficiency just because human values are considered more important than purely economic or material resources within that company; on the contrary such a consideration should help increase efficiency and quality.l6

Arizmendi was the father of the Mondragon cooperatives and offered the cooperative philosophy that was to prove so practical and successful. He initiated a system of education as well as a bank to provide capital for the cooperatives. He understood that individuals needed to be educated as to the meaning of cooperative enterprises, and he knew that cooperatives could not succeed without a consistent source of capital. He was the bridge between the cooperatives and the political, economic, and social institutions of the larger society.

What then has been created at Mondragon? As of 1987, the types of cooperatives were as follows:

Industrial 86
Agricultural 8
Service-sector 4
Educational 46
Retail 1
Housing 15
Second degree and support 6
Total 1661

The scale of Mondragon is impressive. At the start of 1988, the system included 166 cooperatives with 21,000 workers. In 1987, the cooperatives' sales were $1.6 billion, including $310 million in exports. Constituents of the group include a bank, the Caja Laboral Popular (CLP), with $2.9 billion in total assets and 180 branches; Ulgor, Spain's largest appliance manufacturer; LagunAro, a social security and insurance system; Eroski, a retail co-op with more than $360 million in annual sales; Herzibide Elkartea, a collection of schools ranging from the elementary grades to universities and adult education that serves more than forty-five thousand students; and Ikerlan, an advanced technology research center.l8

What we have at Mondragon is an extensive cooperative association, largely industrial producer-cooperatives, operating within a free market economy, with a phenomenal record of profitability and growth since its inception in 1956. This is not your local restaurant cooperative that opened yesterday, high on vision yet low on capital, and closes today. Terry Mollner reports in his 1991 study of Mondragon:

Over 22,000 owner-workers now have positions in their own companies which are virtually guaranteed for life. Their number continues to grow as new cooperatives are created by the entrepreneurial division... Mondragon's productivity per worker is the highest in Spain and their absenteeism rate has been consistently less than half that experienced by conventional firms. Throughout the 1960s and 1970s, Mondragon was more than twice as profitable as the average conventional Spanish firm.
Mondragon has consistently outperformed conventional firms even in hard times. Between 1975 and 1983 there was a deep recession in Spain. The Basque economy overall lost 20 percent of its jobs, with industrial positions decreasing by 31 percent. By the end of 1982 about 178,000 workers were out of work in the Basque regions, representing an unemployment rate of 18 percent, with most of them in the industrial sector. Mondragon not only protected its 11,000 existing jobs, it also created 7,000 new ones and created 37 new cooperative enterprises. In 1985 the unemployment in the Basque country was 27 percent. According to the definition of unemployment customarily used in the United States, only 0.6 of the members of the cooperatives were unemployed.19

Since 1956, with the building of almost 200 successful cooperatives, approximately three have failed. It is the principles and practices of the Mondragon cooperatives that we must look to if we are to understand the reasons for its success.

In many of the studies of Mondragon, a central principle that is articulated is equilibrio, a Spanish word signifying "balance" or "harmony." It is used to describe an objective sought in numerous relationships: between the individual and the cooperative, the cooperative and the association of cooperatives, and the association within the large Basque community. In the United States, we mention the word "cooperative" and we fear that we will lose our individual freedom. We are concerned about our business and often oblivious to other enterprises. We may be aware of the necessity of being good corporate citizens in our community, but this often does not go beyond contributions to poor families during Thanksgiving and Christmas. Mondragon takes seriously the interrelationship described above. "All decisions and actions must, at the same time, benefit the individual, the cooperative and the community at large," writes Jaques Kaswan in his analysis of Mondragon. The structure of power and authority, as we shall see below, assures this as much as possible.

Robert Oakeshott, in his early study of Mondragon (1978), observes the following "balances":

1. The balance between capital and labour.
2. The balance, within the enterprise, between the individual's interest and the interest of the enterprise as a whole.
3. The balance between democratic control and efficient management.
4. The balance between the interests of the enterprise and the interests of the local community (or region) within which it works.
5. The balance between individual responsibility (capital stakes, tough disciplinary provisions) and collective responsibility (e.g. for employment protection).
6. The balance between the independence of the individual base enterprises and the strong central coordination by the bank of the group's operations as a whole.20

The central issue in all decision making appears to be how an action can benefit an individual while also serving a greater common good. Decisions are made freely, from joining a cooperative or leaving, for in all I have read there is no hint of coercion. Yet, freedom is understood as activity within relationship, not in isolation. Everyone is very much aware that they live, work, and act in the context of a community, and that they must be responsible for maintaining the norms of community well-being. Business decisions, for example, are made with the goal of long-term stability for a community, not just short-term profits for a business enterprise. The dignity of the worker, the stability of the community, and the impact on the environment are some of the principled norms that guide economic activity at Mondragon.

The shared values just outlined are taught to students at the schools and educational programs offered at Mondragon. Ideals in themselves may be very appealing, but for ideals to be made substantial in practice there must be continuous education. The schools and the technical institute supply most of the well-educated, future employees for the cooperatives. Just as ESOPs in the United States need to continuously educate workers if the ESOP is to be successful, so workers at Mondragon must be able to understand the complex process of balancing the individual good with the common good. After all, in a cooperative such as Mondragon, workers are not only responsible for appointing directors of their company, they must also be responsible for the association of almost 200 cooperatives. Economic and social justice questions are at the forefront of all major decisions.

Where value-based management maybe at the periphery or the core of ESOPs, the cooperative philosophy of Mondragon leads naturally to a practice of management whose workers and managers share the same interests and goals. Hence, the daily decisions illustrate a practice of cooperative harmony rather than adversarial conflict:

The formal basis for co-op decisions is clear: most Mondragon institutions are based on one member, one vote, with either a simple or a two-thirds majority of the members required. But in practice, decision making tends toward discussion and the generation of consensus, not toward counting votes. If, after full discussion, the group is still clearly divided, the tendency is not to force the resolution of significant issues. Instead, a proposal will be dropped, changed, or set aside for future consideration and modifications that will bring the group together.21

What impact does this decision making process have on the workers?

When asked about their perception of the positive aspect of cooperatives and the Confederation, all the individuals with whom I talked noted the opportunity for participating in shaping the work environment, the benefits of sharing responsibility, the chance to grow and be respected as an individual, and the improved quality of productivity that comes from everyone having a sense of ownership in the enterprise. In addition, there are financial benefits. All members share in profits, are unlikely to be laid off if business is bad (as long as it does not collapse), and enjoy certain tax benefits. The perceived drawbacks are familiar. They include long meetings, handling problem members, difficulties in obtaining financing and inadequate technical support.22

Workers can enjoy substantial authority at Mondragon because the structure of the cooperative insures that real power rests with the workers. Unlike some ESOPs in the United States that are not 100% owned by workers, where worker participation is only symbolic, workers at Mondragon have effective, actual control over their organizations. The Kaswans offer a description of this structure that is consistent with longer, scholarly studies:

All workers belong to the General Assembly, which is the ultimate decision-making body of the cooperative. They generally meet once or twice a year to decide on major policy matters like the election of members to the board of directors and the auditing committee, the annual budget, membership rules, and overall production targets.
Like boards of directors elsewhere, this body selects top management and sets operational policy in line with guidelines set by the General Assembly. They meet at least monthly to review and coordinate operations.
Management attends but cannot vote.
The auditing committee is a three-members group which reviews all activities of the cooperative to make sure that everything is being doing properly. It may call on experts from the bank or elsewhere for assistance. Problems the group identifies are expected to be resolved by those responsible. If all else fails, the auditing committee can call a special meeting of the General Assembly.
Management may be a person or a team. They are appointed by the board for four-year terms. Managers are members of the cooperative and have full administrative authority over the conduct of the business, buying, selling, work assignments, and the like, subject to policies determined by the assembly and the board. Provided management follows these policies, they cannot be dismissed except for serious malfeasance, subject to a vote of both the board and a special meeting of the assembly.
One of the most innovative and important elements of the Mondragon cooperatives is the Consejo Social -the workers' council. All workers supposedly meet monthly, or more often, in small groups in their shop or office, and representatives from each group meet quarterly. These councils function in many ways like unions, except that they are part of a collaborative, rather than adversary, framework. Though the board has final power and management usually has authority to deal with personnel matters, a wide range of issues is discussed in these councils, including wage levels, working conditions, safety problems with individuals, the contributions to be made to the larger community, and policy issues affecting the cooperative. Everyone, including members of the board, is expected to attend meetings of the workers' council. These councils' concerns and proposals often carry a lot of weight, and they therefore function as a key information exchange and mutual influence area.23

The Mondragon cooperatives are examples of successful enterprises built upon a solid foundation of Principled Economics. They deserve to be studied, promoted, and where possible replicated. Replication many not be an easy matter, for there are unique qualities to Basque culture and a specific, historical context to the development of Mondragon. In addition, as the Kaswans emphasize, any individual cooperative at Mondragon is successful because it draws on the resources of supportive associations: a technical school, a bank with an adjunct entrepreneurial division, and a culture that values cooperation.

Nevertheless, the global economy faces challenges that demand new solutions. Nations that are rapidly developing their economies, such as the Peoples' Republic of China, seem oblivious to the human cost of such development. Socialist economies try to extricate themselves from bloated bureaucratic structures, and they too stagger toward the future. Developed economies such as the United States, even during relatively prosperous times -- the winter of 1994 -- leave workers with little confidence or security about their future.

As a framework for economic activity, Principled Economics offers a set of guidelines or norms by which economic choices can be directed. If economic activity concerns not just the creation of wealth, but the creation of the virtuous society, then all decisions must consider the dignity of the worker, the well-being of families and communities, the sustainability of the environment and -- in sum -- the sacredness of life. If any of life has been profaned by "getting and spending" -- as the poets have complained -- then we must all learn to make holy choices.


1. Matthew Habiger, "Papal Tradition on Distribution and Ownership," in Curing World Poverty, ed. John H. Miller (Saint Louis: Social Justice Review, 1994), pp. 1-13; p. 1.

2. Louis O. Kelso and Mortimer J. Adler, The Capitalist Manifesto (New York: Random House, 1958), p. 30.

3. Ibid. p. 28.

4. Louis O. Kelso and Patricia Hetter, Two Factor Theory (New York: Vintage Books, 1967), p. 5.

5. Toward Economic and Social justice (Washington, DC: Center for Economic and Social Justice, 1986), p. 8.

6. ibid. p. 13.

7. Ibid. p. 15.

8. Joseph W. Recinos and Rina Sanchinelli, "The Solidarista Worker and Employer Federation: The Advocacy of Employee Stock Ownership in Central America," in The Role of Property in Building Economic and Social justice (Rome: CESJ, 1991), pp. 1-7; pp. 3-4.

9. Dawn M. Kurland, ed., Every Worker an Owner (Washington, D.C.: Center for Economic and Social Justice, 1987).

10. Corey Rosen, "ESOPs Key to Russian Privatization" (San Francisco Chronicle, March 8, 1993), p. E3.

11. "Employee Ownership and Corporate Performance," in the Employee Ownership Reader (Oakland, California: National Center for Employee Ownership, 1993), p. 4.

12. Ibid. p. 12.

13. "Taming of the Screw," in The Role of Property in Building Economic and Social justice (Washington, D.C.: Center for Economic and Social Justice, 1991), n.p.

14. Ibid.

15. Terry Mollner, The Prophets of the Pyrennes (Northhampton, MA: Trusteeship Institution, January, 1991, Draft), p. 65.

16. Ibid. p. 111.

17. Ibid. p. 13.

18. Ibid. pp. 8-9.

19. Mollner, pp. 128-129.

20. Jaques Kaswan, Cooperative Democracy: Concepts and Practice (Berkeley: The Alternatives Center, 1988), p. 98.

21. Robert Oakeshott, The Care for workers' Co-ops (London: Routledge & Kegan Paul Ltd., 1978), p. 201.

22. Roy Morrison, We Build the Road as We Travel (Philadelphia: New Society Publishers, 1991), p. 72.

22. Jacques and Ruth Kaswan, Cooperative Systems in France, Basque Spain and Frankfurt (Berkeley: The Alternatives Center, n.d.), p. 3.

23. Jaques and Ruth Kaswan, "The Mondragon Cooperatives," Whole Earth Review (Spring 1989), pp. 8-17; pp. 11-12.

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