‘One Worker, One Vote:’ US Steelworkers to Experiment with Factory Ownership, Mondragon Style

By Carl Davidson
Cross posted from Beaver County Blue

Oct. 27, 2009–The United Steel Workers Union, North America’s largest industrial trade union, announced a new collaboration with the world’s largest worker-owned cooperative, Mondragon International, based in the Basque region of Spain.

News of the announcement spread rapidly throughout the communities of global justice activists, trade union militants, economic democracy and socialist organizers, green entrepreneurs and cooperative practitioners of all sorts. More than a few raised an eyebrow, but the overwhelming response was, “Terrific! How can we help?”

The vision behind the agreement is job creation, but with a new twist. Since government efforts were being stifled by the greed of financial speculators and private capital was more interested in cheap labor abroad, unions will take matters into their own hands, find willing partners, and create jobs themselves, but in sustainable businesses owned by the workers.

“We see today’s agreement as a historic first step towards making union co-ops a viable business model that can create good jobs, empower workers, and support communities in the United States and Canada,” said USW International President Leo W. Gerard. “Too often we have seen Wall Street hollow out companies by draining their cash and assets and hollowing out communities by shedding jobs and shuttering plants. We need a new business model that invests in workers and invests in communities.”

“This is a wonderful idea,” said Rick Kimbrough, a retired steelworker from Aliquippa, Pa, and a 37-year-veteran of Jones and Laughlin Steel. “Ever since they shut down our mill, I’ve always thought, ‘why shouldn’t we own them?’ If we did, they wouldn’t be running away.” J&L’s Aliquippa Works was once one of the largest steel mills in the world, but is now shutdown and largely dismantled. Much of the production moved to Brazil.

The USW partnership with Mondragon was a bold stroke. While hardly a household word in the U.S and little known in the mass media, the Mondragon Cooperative Corporation (MCC) has been the mother lode of fresh ideas on economic democracy and social entrepreneurship worldwide for 50 years. Started in 1956 with five workers in a small shop making kerosene stoves, MCC today has over 100,000 worker-owners in some 260 enterprises in 40 countries. Annual sales are pegged at more than 16 billion Euros with a wide range of products–high tech machine tools, motor buses, household appliances and a chain of supermarkets. MCC also maintains its own banks, health clinics, welfare system, schools and the 4000 student Mondragon University–all worker-owned coops.

Over the past decade, there have been a handful of efforts to apply the model and methods of MCC to projects in the United States. Almost all are on a small scale–several bakeries in the Bay Area, some bookstores, and most recently, an industrial laundry and solar panel enterprise in Cleveland. In Chicago, Austin Polytechnical Academy, a new public high school in a low-income neighborhood, was inspired, in part, by Mondragon, and a group of its students recently took part in a study tour of MCC in the Basque region.

But the USW initiative, and the potential clout behind it, puts the Mondragon vision on wider terrain. An integrated chain of worker-owned enterprises that might promote a green restructuring of the U.S. economy, for instance, would not only be a powerful force in its own right. It would also have a ripple effect, likely to spur other government and private efforts to both supplement and compete with it.

The USW is proceeding cautiously. “We’ve made a commitment here,” said Rob Witherell during a recent interview at his Organizing Department’s offices in the USW Pittsburgh headquarters. “But for that reason, we want to make sure we get it right, even if it means starting slowly and on a modest scale.”

What this means at the moment, Witherell explained is that the USW is looking for viable small businesses in appropriate sectors where the current owners are interested in cashing out. The union is also searching for financial institutions with a focus on productive investment, such as cooperative banks and credit unions.

“It can get complicated,” Witherell continued. “Not only do you have to fund the buyout, but you also have to figure out how to lend workers the money to buy-in, so they can repay it at a reasonable rate over a period of time, and still make a decent living.”

The core Mondragon model was developed in the 1950s by a Roman Catholic priest, Father Jose Maria Arizmendi. It starts with a school, a credit union and a shop–all owned by workers who each had an equal share and vote. The three-in-one combination allows the cooperative to rely on its own resources for finance and training. The worker-owners cannot be fired. In regular assemblies, they hire and fire their managers, as well as set the general policies and direction of the firm. The workers themselves decide on the income spread between the lowest paid worker and the highest paid manager, which currently averages about 4.5 to one. (Compared with more than 400 to one in the U.S.) As the worker-owners accumulate resources, they can encourage the formation of new coops, indirectly through their bank and directly through their firms, and bring them into the overall structures of MCC governance. This is how they grew from one small shop to 260 enterprises in the past 50 years. Finally, if a worker-owner retires, he or she can ‘cash out,’ but the share cannot be sold. It is only available for purchase by a new worker-owner at that firm.

This last crucial point was developed by Arizmendi during the course of deep study of Catholic social theory as well as the works of Karl Marx and the English cooperativist Robert Owen. A worker-owner’s ability to sell his or her share to anyone was a flaw in Owen’s approach, Arizmendi decided, since it enabled outsiders to buy the more successful coops, turning their workers back into wage-labor, while starving the other less successful coops of resources. With Arizmendi’s new approach, only four out of the several hundred MCC coop ventures have failed during the half century since Mondragon began.

The difference between worker-owned coops Mondragon-style, and ESOPs, or Employee Stock Ownership Programs more prevalent in the U.S., has to do with legal structure and control. In an ESOP, a portion of the companies stock, ranging from a large minority bloc to 100 percent, is owned by workers but held in a trust. Its value fluctuates with the stock market and workers can get dividends as they are paid, buy more stock, or “cash out” when they retire. If they do “cash out,” they pay taxes on the closing amount, unless they roll it over into an IRA. By and large, ESOPs are financial instruments and do not automatically lead to worker control over the workplace or a role in shaping the firm’s capital strategies. Managers are hired by the firm’s board of directors, in turn, connected to the trust.

“We have lots of experience with ESOPs,” said Gerard, “but we have found that it doesn’t take long for the Wall Street types to push workers aside and take back control. We see Mondragon’s cooperative model with ‘one worker, one vote’ ownership as a means to re-empower workers and make business accountable to Main Street instead of Wall Street.” The USW, however, will insist on at least one modification of the Mondragon model: the worker-owners will be organized into trade unions, and will sign collective bargaining agreements with the management team. This sets up a unique situation whereby unionized workers reach an agreement with themselves as a workers’ assembly and with the management team they hire.

This is not as big of a problem as it may sound. “’This is not heaven and we are not angels’ is a common phrase heard by visitors to Mondragon,” said Michael Peck, MCC’s North American delegate. Within the structure of each MCC enterprise is a ’social committee’ of the workers, which looks to their broader social concerns. But, it has also come to play the role of settling day-to-day disputes with the management team, thus serving as a de facto union. Class struggle surely continues, even in a modified form in a worker cooperative.

There are also other features unique to MCC that may or may not apply to its replication in the U.S. Father Arizmendi developed his plan as a community-based survival mechanism following the devastation of the Spanish Civil War and World War Two. He was imprisoned under Franco. The Basque region, a center of anti-Franco resistance, was not only in economic ruin, but was also punished by the Franco government by being denied resources. MCC evolved through self-reliance.

Under Spanish law, because the MCC worker-owners are not technically wage-labor, but get their income from a share of the profits, they are excluded from much of the country’s social welfare safety net pertaining to workers. MCC responded by organizing and funding it’s own ’second degree’ cooperatives–health care clinics, retirement plans, schools and other social services, all cooperatively owned with their own worker assemblies. Much of this integrated second-degree structure may not be required in the U.S. Here, it may make more sense for worker-owned enterprises to form local or regional collaboratives and stakeholder arrangements with county government, credit unions, community colleges and technical high schools, and other nonprofit agencies.

What’s in the partnership for Mondragon? Josu Ugarte, President of Mondragron Internacional declared: “What we are announcing today represents a historic first–combining the world’s largest industrial worker cooperative with one of the world’s most progressive and forward-thinking manufacturing unions to work together so that our combined know-how and complimentary visions can transform manufacturing practices in North America. We feel inspired to take this step based on our common set of values with the Steelworkers who have proved time and again that the future belongs to those who connect vision and values to people and put all three first.”

Along with its core values and unique ownership structure, MCC is still a business producing goods and providing services in markets, anchored in Spain but reaching across the globe. It seeks to sustain itself and grow, although it is not driven by the same ‘expand or die’ compulsion of traditional corporate or privately owned firms. Adding more worker-owners simply gives each worker a smaller slice of a bigger pie. There’s no removed batch of nonproducing stockholders raking in superprofits, or trading their stock speculatively as it rises or falls.

MCC firms still compete with traditional rivals for customers in the marketplace, and thus are always seeking a competitive edge. MCC enterprises, for example, are mainly known for high quality products. But when this is combined with a fact of self-management, that they have far fewer supervisory layers on the payroll, the higher quality products hit the marketplaces with a lower price. This puts MCC on the leading edge of Spain’s economy.

MCC also looks for other advantages, such as horizontal integration and securing competitive sources of supply. This is why it has cautiously been expanding abroad, buying up supply firms or other complimentary businesses, and seeking to reshape them into the MCC cooperative structure. Often, however, they run into difficulties, where another country’s laws treat cooperatives with disadvantages.

That is not the case in the U.S., where even though industrial coops are not common, there are few undue restrictions on their formation. “As we look for firms to purchase,” said Witherell, “MCC is not just interested in buying up companies and having the workers as employees. It’s the MCC rep that’s always pushing on how readily we can convert to worker ownership.”

The Mondragon initiative is not the first innovative project of the Steelworkers seeking wider allies. With the encouragement of International President Leo Gerard, following on the anti-WTO street battles in Seattle in the 1990s, the USW helped found the Blue-Green Alliance together with the Sierra Club and other environmentalists. It has worked closely with Van Jones and ‘Green for All’s jobs initiatives and the union plays a major role in the ongoing annual ‘Good Jobs, Green Jobs’ conferences. Most recently, the USW was a major participant in the week-long series of events making the oppositional case at the G20 events in Pittsburgh.

For Gerard and the USW, these alliances are matters of utmost practicality and survival. Gerard points out that 40,000 manufacturing facilities in the U.S. have closed since the onset of the 2007 economic crisis, throwing 2 million people out of work. His answer is structural reform in the economy along the lines of a ‘green industrial revolution’ and to fund it with a tax of speculative capital’s financial transfers, known as the ‘Tobin Tax.’

“Americans going green–manufacturing windmills and solar cells–would benefit both the economy and environment,” said Gerard in a Campaign for America’s Future article. “As the Wall Street debacle that pushed this country into the Great Recession last year showed, the United States cannot depend on trading in obscure financial products to support its economy. To survive, America must be able to manufacture products of intrinsic value that can be traded here and internationally.” He often notes that there are 200 tons of steel and 8000 moving parts in every large wind turbine–a concept that is never lost on the unemployed and under-employed manufacturing workers that hear it.

The same point is not lost on small and medium-sized businesses looking for orders from new endeavors. This is where green entrepreneurs can form alliances with worker-owned cooperatives, trade unions, living wage job advocates and the global justice movement. The key question is whether the political will and organizational skill can be brought together to make it all happen in a way that most enhances the strength and livelihood of the working class.

Here is where the ball returns to the court of left organizers and solidarity economy activists. Lending a helping hand to the new initiative entails a good deal of investigation into the state of local businesses and conditions, plus building alliances, generating publicity, and contributing educational work among all those concerned. It’s not crowded, and there’s a lot to be done.