Lessons from Basque Country

In the 1950s Father José María Arizmendiarrieta, the village priest of Mondragón in the Basque region of Spain, inspired the development of a series of cooperatively owned industries to employ youth in his parish.  His vision was that, through ownership by the workers, the wealth created by new industries would be distributed to the workers and to the larger community that nourished and supported them.

Alice Maggio at Mondragón.

In February we visited the region with board members of BerkShares local currency to learn more.  There we met with the Director of Cooperative Education for the Mondragón Cooperatives.

There are now some 102 cooperatives that have grown out of Mondragón, employing over 100,000 people.  Combined annual revenues are in the six-billion-euro range, making them, together, the seventh largest business in Spain.  Each of the cooperatives is required to donate 10% of yearly profits to education and social-good projects, which ensures a steady stream of philanthropic funds to Basque cultural institutions.  This support has allowed Basque language and culture to flourish once again after years of oppression by the Spanish dictator Franco.

The cooperatives are also required to place 10% of annual profits into a social entrepreneur pool.  These funds are then used for the research and development of new cooperatives or to improve existing industries. This further supports the regional economy by creating jobs and by expanding the web of collaborating businesses. By agreement, the highest paid workers in the cooperatives earn no more than eight times the salary of the lowest paid, further distributing wealth and purchasing potential.

Caja Laboral is the cooperatively owned bank that was founded to serve the financial needs of the industrial cooperatives. Originally the bank also took on the role of developing and funding new enterprises. When Spain joined the Euro zone, however, bank regulators declared that Caja Laboral was too heavily invested in one area—the cooperatives—and forced diversification into so-called “safe” investments in global markets, investments that included Lehman Brothers. Mondragón Cooperative Corporation was subsequently formed to replace the research role of the bank and to manage investment in new enterprises.

Although the “safe” investment in Lehman did cause a 40 million Euro loss, Caja Laboral is currently doing relatively well, even as the Spanish banking industry is crumbling.  It has 460 branches throughout Spain, most of them concentrated in the Northeast Basque region. Talk on the streets in Bilbao, Spain, credits ownership by employees, rather than by distant investors, as key to Caja Laboral’s stability through hard economic times.  Bilbao itself boasts some of the handiwork of the Mondragón cooperatives: the magnificent Frank-Ghery-designed Guggenheim Museum was built by one of the cooperatives, which specializes in “steel structures nobody else can build.”

Staff visit to Mondragón in 2007.

At a time when Spain is experiencing 25% general unemployment and 50% youth unemployment, the Mondragón Cooperatives have no unemployment.  This is the result of retraining workers and transferring them from slowing sectors to more active sectors.  Recently, the Mondragón Cooperatives have had to redistribute 2,000 workers from FAGOR, the flagship of the cooperatives, to other cooperatives because recession-hit Europe is buying fewer of FAGOR’s stoves and washing machines. The repositioning of FAGOR workers and resources is an acknowledged struggle, but a cooperative-wide system of general assemblies allows worker-owners to make decisions that help them deal with changing economic tides.  One response to the current economic situation has been to institute a cooperative-wide voluntary reduction in work hours, permitting more people to work although in shorter shifts.

Along with production-focused cooperatives, there are secondary and tertiary co-ops that provide services to members and to the industrial cooperatives.  For example, Lagun Aro is a social-welfare cooperative that provides health insurance and supplementary retirement funds.  Consumer cooperatives such as Eroski provide needed goods at a fair price.  Eroski now produces many of the products it sells, providing additional employment in the region.

When we talked with the Director of Cooperative Education about BerkShares, he told us of a recently issued currency in the Southwest of France called the Eusko, which supports Basque business and culture.  He asked us how a Basque currency might further strengthen the cooperatives. Because the Eusko is loosely modeled on BerkShares, although not yet working with banks, we suggested distributing Euskos through the multiple branches of Caja Laboral, therefore further consolidating Basque identity and economic independence.

While visiting the Eusko’s enthusiastic young organizers in Bayonne, we traded BerkShares for Euskos, ate great Basque food, had our pictures taken in several of the participating shops, and fell in love with the narrow cobblestone streets and churches of French Basque country.

New friends, great memories, and many lessons learned.

Over the course of 60 years Mondragón has developed from an impoverished town of metal workers with little opportunity into the home of the largest worker-owned cooperative business group in the world.  But its success is not just about ownership.  Father Arizmendiarrieta was concerned with the life of the whole village and created a system that reflected that concern: the profits of the cooperatives support schools for the village’s children;  Basque language, dance and cultural programs build pride, coherence, and local connection;  the investment in health care and social services sees workers and their families through all stages of their lives.  But the real genius is the social-entrepreneur arm that researches, develops, and finances new businesses appropriate to the region and to the skills of those living in the region.  This role expands the influence of the cooperatives and provides jobs for a new generation of Basque workers.

It is that social-entrepreneur function that we are looking to bring back from the Basques to the Berkshires—by building a “community supported industry” in conjunction with a loan program in BerkShares, thereby in a small way addressing the mounting challenges of a fragile global economic system.