In the Shadow of the Dragon

The motivating force of the theory of a democratic way of life is still a belief that as individuals we live cooperatively, and, to the best of our ability, serve the community in which we live, and that our own success, to be real, must contribute.

– Eleanor Roosevelt

There was a dragon here hundreds of years ago, here in the Basque country in northern Spain, a place steeped in tradition, a hilly expanse between the mountains and the sea. Local lore has it that the Basque language, the only European one with no known root language, is a remnant from the time of Atlantis, which may have vanished into the Atlantic Ocean not far from here eons ago.

Standing on a hillside overlooking an early autumn valley, Louise and I were amazed by the simple beauty of the mountain of the dragon, its gray and balding peak towering above the town like an ancient ziggurat. This is Mondragon, a small town named after the dragon of the mountain, the dragon probably being, a local resident told us, a particularly brutal lord or local king who exercised the Rite of the First Night, a dreaded ritual when fair maidens were whisked away on their wedding night.

The Rite of the First Night was said to have been common across Europe throughout the Dark and Middle Ages, although it was probably far less common than modern folklore suggests. When a young woman was married, she was required to spend the night of her wedding with—and lose her virginity to—the local lord or king.

Oddly enough, all across Europe one still finds remote communities where most of the people have similar large noses or red hair or big ears and so on—all descendants of some ancient lord who fathered the first children of innumerable families. European society was patriarchal and hierarchal, and because the king lived in distant Toledo, his defilement role was filled by the local lord. The sheer horror of his men coming to take away the new bride became the legend of the dragon.

Now here is the ultimate irony: right here in this valley, in the shadow of the dragon, has grown a business enterprise that—in virtually every way imaginable—is the antithesis of a dragon.

And for all of us in the United States, this business enterprise represents a model that can be transformative and sow the seeds of a new kind of business entity that is, at its heart, more equitable, more fair, and more just—and therefore more truly American— than the predatory multinational corporations that are now typical of twenty-first-century America.

Cooperation and Corporation

The Mondragon Cooperative is neither hierarchical nor patriarchal. There’s no king or lord. The corporation is owned by its employees. The most highly paid person earns less than six times the most poorly paid person. Decisions are made by workers on the front lines and then communicated up to the “managers” for implementation.

And this is no flaky, hippy-dippy communelike experiment. It is the world’s largest federation of cooperatives, employing more than 90,000 people in more than 250 companies that focus on four areas: retail, finance, industry, and knowledge. In 2008, Mondragon’s revenue was €16.8 billion ($24.2 billion). All—every last euro cent—of the profits are distributed in one of three ways: reinvested in the business, given to worthy local charities, or paid as dividends to Mondragon’s worker-owners.

What Mondragon has shown, by its sheer size, scope, and success, is a new economic model that avoids the pitfalls of both modern capitalism and old-fashioned communism.

“Capitalism” has its deficiencies, whether institutions are for- profit (think Goldman Sachs, where stocks are sold to investors or the public) or not-for-profit (think Red Cross, where the CEO earns $500,000 per year and the “stock” is controlled by a board of directors).

Similarly, “communism” has its problems because the state owns the business, employees are simply agents of the state, and nothing works because nobody is accountable to anybody and there’s no incentive to do better.

Most importantly, both capitalism and communism are top- down hierarchies that stifle human ingenuity.

But Mondragon is the world’s largest example of a third way: worker-owned cooperatives that foster enterprise as well as equity. Unlike the top-down nature of capitalism and communism, Mondragon has flipped that pyramid upside down.

That flipping is apparent when one visits any of the Mondragon businesses. Louise and I were on the factory floor of an absolutely spotless washing-machine manufacturing facility of the Mondragon Cooperative in 2009 when we witnessed the true cooperative nature of the enterprise. Like all Mondragon businesses, this state-of-the-art industrial facility, converting sheets of raw metal into finished washing machines for sale all around the world, is run by its employees.

As we stood watching, a group of about a dozen workers assembled electronics on a U-shaped assembly line. A “manager” walked up and asked for everyone’s attention. Our translator shared with us the essence of the conversation: next Thursday there was going to be a schedule change, the result of some local event.

At first it sounded like a typical manager telling his employees what was what. “Thursday our systems will change, and we’ll have to produce a different number of units,” he said. The workers nodded.

Then came the bombshell: “How do you all think we should do this?” he asked.
A conversation ensued, and it dawned on me that the workers were not arguing or fighting or complaining; they were offering concrete suggestions. With each suggestion others would point out its strengths or weakness or offer their own.
The “manager” was facilitating the conversation and taking notes. Within 10 minutes some sort of a consensus was achieved, and the workers told the “manager” how they’d handle Thursday’s change. He thanked them and left, his job now to communicate up to the cooperative’s administrators how the assembly line would adjust itself to Thursday’s changes.

This was about as far from the Rite of the First Night as it’s possible to imagine. In Mondragon, in the shadow of the ancient—and now dead—dragon, the descendents of the serfs have taken charge. The result is one of the most successful—and equitable—business models in the world.

And it’s not just the business pyramid that has been upended; there’s a sociocultural element at Mondragon that is just as transformational to its local cultures as is the idea of workers owning and running their own businesses.

Mondragon University was the first institution started here by Don José Maria Arizmendiarrieta, the priest who began in the 1940s what has now grown to become the worldwide Mondragon organization. Investing in education—building knowledge—is like building a factory. Through Mondragon University they’re investing in humans just as much as the factories are investing in the business infrastructure of the towns where Mondragon works. That investment in educating and training students at a university with strong links to the cooperatives is evident in the fact that almost all students find work within weeks of graduation. Mondragon’s practice of placing people over profits clearly produces results that benefit all.

Bringing the Lesson Home

Somehow Americans have lost sight of this. We see no benefit in any investment that does not produce profit for the owners, whether the owners are the distant stockholders or the investors or the top executives. Such an attitude not only devalues workers but also fails to recognize the importance of investing in public education, which is particularly tragic given what a difference education can make in social mobility.

The lessons are right before us and easily measurable.

In 1979 the United States was one of the most socially mobile nations in the world, but Reaganomics changed all that. Today the economic class you’re born into is the single-most influential factor in determining the economic class in which you’ll die. We are the most socially rigid society in the world, having just recently surpassed the royalty-bound United Kingdom.

Similarly, when Ronald Reagan took office in 1981, the income-tax rate for millionaires was 74 percent, which helped keep the average ratio of the lowest-paid worker in a company to its CEO at around 1:30.

Since Reagan cut that tax rate down to near 30 percent, and George W. Bush dropped the top income tax rate for capitalists— people who make their money investing money, who “earn their living” sitting around the pool waiting for the dividend check to arrive—to 15 percent, the ratio is now closer to 1:600; and among many of the Fortune 500 companies, it can be more than 1:5,000. We’ve gone from about 25 percent of the workforce being unionized when Reagan took office to about 7 percent of the workforce today. Workers are so terrified of losing their jobs that sexual harassment claims have exploded, and most workers don’t even dare report it. The new Rite of the First Night perpetrators are senior corporate managers and CEOs. The antidote is to spawn Mondragon Cooperatives of our own.

Time to Think Big

In America we generally know nonprofits and cooperatives to be small, modest operations that are fueled mainly by the passion and the commitment of a core group of dedicated believers, including volunteers or underpaid staff.

That public-service mission is true of nonprofits in general. (Of course, there’s been an explosion of sham nonprofits in the USA over the past few decades; for-profit companies have moved to nonprofit status to take advantage of tax exemptions and lower postage rates and then pay their CEOs huge salaries. But that’s another rant.)

About two decades ago, Louise and I moved to Vermont. Just down the block from our house was the Hunger Mountain Cooperative, a member-owned health-food store and grocery. As members, Louise and I got an annual distribution check (usually around $100), representing our share of the “profits” of the co- op; and if we’d volunteered to work at the co-op, we would have reaped greater financial benefits. In the small town of Montpelier (population 8,035), the co-op was as big as any local supermarket.

Now we live in Portland, Oregon, and there are numerous similar food co-ops, mostly small and community based. These types of community-based nonprofits and health-food co-ops are the models familiar to Americans. While they have a good reputation, they are generally seen as inconsequential, economically speaking. To use the vernacular of the tech world, such co-ops are not “scalable” and therefore will remain small in size and scope.

But Mondragon, and other large co-ops around the world like Asiapro in the Philippines, exemplify another business model. Every bit as aggressive, every bit as competitive, and every bit as successful as large for-profit corporations, the Mondragon Cooperative offers a serious alternative to predatory capitalism that puts workers first, caters to the needs of customers, and, perhaps more importantly, establishes a business model that is fair, humane, and equitable.

Early economic models—from monarchy to hierarchy to capitalism—represent ways for the predatory and the acquisitive to rise to the top of the pile and get as much as they can. As such they foster the human traits of greed and aggression.

One way to consider the fundamental issue is to ask: is the economy here to serve workers, or are workers here to serve those who own the economy? The answer of old-fashioned capitalism— reaching all the way back to Gilgamesh’s time in 2700 b.c.—is that workers are here to serve the economy and its owners.

But that can be changed—and it is being changed all over the world. It is entirely possible in twenty-first-century America for us to use the tools of technology and finance to spawn large numbers of Mondragon-like cooperatives right here.

If a $24 billion cooperative venture can be successfully established in the remote Basque region of northern Spain, surely it can be done in modern-day metropolises of the wealthiest nation on earth.

Thom Hartmann is a New York Times bestselling Project Censored Award winning author and host of a nationally syndicated progressive radio talk show. You can learn more about Thom Hartmann at his website and find out what stations broadcast his program. He is also now has a daily television program at RT Network. You can also listen to Thom over the Internet.

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