Acknowledgements

Economies of Scale Versus Participation: a Co-operative Dilemma?

Jones, D.C.; Kalmi, P.

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JEOD - Vol.1, Issue 1 (2012)

the 1990s, the group began to emphasize the importance of minimizing the use of temporary workers 

and set a goal that a minimum of 85% of the co-ops’ internal work force should be made up of worker-

members. While for most of the period from 1995-2005 there were steady if modest improvement in the 

membership ratio, improvements have accelerated since then and in 2009 the group exceeded its 85% 

membership goal.

19

 At the same time, undoubtedly an important part of the improvement in membership 

ratios since 2008 has been the recession and the clearly differing provisions for job security for members 

and non-members.

   The most complex of the situations involving non-member employees is that of the overseas manufac-

turing subsidiaries of co-ops in the industrial group employing approximately 12,000 people. in general, the 

co-ops have felt that opening up membership to workers in these plants is legally, financially and culturally 

problematic; hence, in the short-term, employee ownership overseas has been viewed as non-viable or 

excessively risky. This perspective has begun to change, however. A policy has been developed for overseas 

operations to promote “employee participation” in three areas: decision making, profits and ownership. 

A number of co-ops had concrete plans to experiment with partial employee ownership in their foreign 

plants, but these have largely been put on hold by the financial and general economic crisis. Others are 

debating different financial, legal and related strategies for achieving this three-pronged participation in 

different countries where legislation, workers’ economic circumstances and cultural norms vary widely. 

The jury is still out on whether Mondragon can put in place substantial cooperative or similar employee 

ownership arrangements in its overseas activities. Since overseas employment investment can only grow in 

coming years, this issue bears close monitoring by researchers, policy-makers and others. it is one of the key 

strategic issues the Mondragon cooperatives face in the medium to long term.     

5.1 Maintaining democracy within individual co-operatives and co-operative groups. 

At Mondragon important challenges also have faced individual co-operatives and co-operative groups. 

in response there have been continuing attempts to solve the dilemma of how best to provide for a high de-

gree of democracy and autonomy in individual firms and yet also allow central bodies to promote changes, 

economies of scale and sustained efficiency in the whole group. During the first generation of the group, 

Mondragon companies worked out common policy and governance arrangements through joint member-

ship in their own banking cooperative, the Caja Laboral, which is a second-tier cooperative, a co-operative 

whose members are other co-operatives (Thomas and Logan, 1982). As years passed, the potential advan-

tages of joint action for investment and employment planning, training, new product development, expor-

ting and other activities became clearer. Starting in 1964 the cooperative firms decided to form subgroups 

based on geographic proximity.

The growth of newer sectors such as auto parts manufacturing and retailing, as well as the general sense 

of a need for more economically rational organizing criteria, continued to create momentum for change. 

Hence, after substantial discussion and debate in the late 1980s, the group decided to reorganize itself 

again, this time with two other features principally in mind: (1) the establishment of central structures 

for overall governance, strategic coordination and the provision of management services; and (2) the 

creation of subgroups of firms, the groups/divisions, by industrial sector instead of by region. in the main, 

19

  Data for the financial group are not readily available (though this represents fewer than 5% of total employment in Mondragon.)

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Economies of Scale Versus Participation: a Co-operative Dilemma?

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JEOD - Vol.1, Issue 1 (2012)

it simply seemed to make more economic sense to the co-ops to join together in subgroups according to 

product/market affinity and not geographic proximity. in 1991, the Mondragon Cooperative Corporation 

(MCC) was born to put these ideas into practice. At first, three different sectoral groups were created; 

financial, manufacturing (called “industrial”), and retail. Later a knowledge group was added. As part of 

this restructuring process, the manufacturing group was itself divided into a number of divisions. However, 

while the push was to move away from regional groups,  some regional groups have remained more or 

less active within this new manufacturing group, e.g. at FAGOr and ULMA.  Also, other structural 

modifications have taken place since 1991 and, in 2008, the group’s name was changed from “MCC” to 

simply “Mondragon.” Nevertheless, so far, the basic organizing principles at Mondragon remain largely 

intact, seeking, again, to balance autonomy for individual co-ops with strategic coordination and common 

governance.These structural changes might be seen as reflecting shifting views concerning the on-going 

debate on the optimal degree of decentralization/centralization for individual firms. While the changes 

mean that management practices and governance structures at the highest levels are not as “close to the 

shop-floor” or as participatory today as during earlier periods, at the same time, the evidence suggests that 

these organizational changes did not really affect day-to-day operational fundamentals. While individual 

firms willingly surrendered some autonomy to the groups/divisions, the balance of power continued to 

reside with individual firms rather than the center. The existence of individual firm autonomy is perhaps 

best illustrated in two areas: (1) those rare cases of co-op closures; and (2) firms’ decisions to enter and/

or leave the Mondragon group. in the first area, when an individual company is under serious threat, 

Mondragon will provide consultative and even financial help so long as it seems possible to sustain the 

business. But the decision to close--and to protect any remaining individually owned stakes-- is taken by 

the particular cooperative.

20

 By contrast, in anticipation of shifting market opportunities, the center might 

take the initiative in suggesting concrete ways in which individual co-ops could shift their product mixes 

and even give advice on new plant locations. But final decisions rest with the individual co-op-those at 

the center do have substantial authority, formal and informal, but, where there is disagreement, they tend 

to negotiate decisions with individual co-ops and make recommendations. They do not have traditional 

executive authority. in the second area, the preeminence of co-op autonomy is also clear. Whether to 

enter or remain a part of the Mondragon sectoral network, depends on a decision by each co-op’s General 

Assembly of worker-members. A small number of co-ops did, in fact, decide not to join the MCC structure 

when it was first proposed (e.g. the ULMA Group) or to leave the structure in later years (e.g. AMPO). 

Several of these have since voted to return to the Mondragon network, but the key point here is that the 

decision-making authority for these decisions rests in the individual co-operative firm, not in a centralized, 

corporate body. A key issue relating to membership and democracy in groups is the legal structure of joint 

ventures and subsidiaries. Again Mondragon has also shown itself to be very flexible in this area. During 

the early years, all enterprises in the group were cooperatives located in the Basque region and new firms 

entered the group as start-up co-ops or through immediate conversions or mergers of existing firms into co-

ops before or upon entry. Over the years, however, the group has purposefully evolved to include enterprises 

that are not restricted to cooperatives.  As well as the now extensive use of conventionally-owned subsidiaries 

outside the Basque Country, particularly in the Eroski retail chain and in the industrial co-ops’ as part of 

the internationalization process, since the late 1980s, the Mondragon group has expanded by acquiring 

20  

An interviewee provided details of the steps surrounding the closure of two co-ops  COViMAr and ViCON during earlier 

crises. The process of managing this change involved many stages including pay cuts (which increased over time) and technical 

and financial assistance from the Caja Laboral (on behalf of the group). While sustaining jobs was a key concern, repayment of 

creditors was also of central importance. Ultimately the co-op decided to close.

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