Trouble in workers’ paradise Mondragon The collapse of Spain’s Fagor tests the world’s largest group of co-operatives The Economist November 9 2013
Madrid
NEWS that Spain’s largest appliance-maker is heading for bankruptcy will not come as a complete shock in the crisis-ridden country. Yet Fagor is a special case. It is part of Mondragon, the world’s biggest group of worker-owned co-operatives. Nestled in the green hillsides of the town of the same name, in the Basque country, Mondragon has won many awards and much praise as a shining alternative to shareholder capitalism and a bastion of workplace democracy during its six decades of history.
Now, one of the group’s key principles—of solidarity among its 110 constituent co-ops—has found its limit. Fagor has lost money for five years and has run up debts of €850m ($1.2 billion). Its sales have fallen sharply because of Spain’s property bust and low-cost competition from Asia. Even pay cuts of over 20% have not been enough to turn it around. Its factories all ceased production three weeks ago.
In the past, losses in one part of the group have been covered by the others, but this time Fagor’s pleas for a €170m lifeline were rejected, even though the Spanish and Basque governments were ready to step in as part of the rescue. Eroski, another co-operative in the Mondragon group and one of Spain’s largest retailers, is also struggling in the face of stiff competition, and it and two other co-ops vetoed Fagor’s plan.
This was a blow to Sergio Treviño, Fagor’s boss since April. He had planned to move the bulk of production to Poland and to turn Fagor into an ordinary company with outside shareholders. Its Polish unit has now filed for creditor protection and the French unit will follow, triggering cross-default clauses in Spain. As we went to press Fagor looked likely to file for bankruptcy imminently.
Politicians have accused both Fagor and Mondragon of doing too little, too late. Mondragon’s managers continue to defend the worker-ownership model, and insist that the bulk of the group’s operations are competitive. It employs 80,000 people in 27 countries in businesses that range from finance to car parts to high-end bicycles. The group’s most senior manager earns no more than eight times the lowest-paid worker in the co-operative.
Fagor, with 5,600 workers, is a relatively small part of the whole. Even so, Mr Treviño warns that its fall “will have an uncontrollable domino effect on the rest of the group with major social implications.” He believes Fagor’s liquidation would create a €480m hole at Mondragon, including inter-group loans and payments the group’s insurance arm would have to make on Fagor workers’ unemployment policies. Mondragon has promised to find new jobs or offer early-retirement terms for as many as it can of Fagor’s Spanish workers, but this is a tall order in a country with 27% unemployment. Besides their jobs, workers stand to lose the money they had invested in the co-op if it is liquidated.
Britain’s even older co-operative movement (founded in 1844 and nominally owned by its customers rather than its employees) is undergoing a similarly harsh encounter with economic realities. Its banking arm, hit by huge bad debts after taking over another mutual lender, is having to bring in American hedge funds as outside shareholders, because its parent movement was unable to rescue it alone. The co-operative model has its virtues, but there are times when those nasty, money-obsessed capitalists have their uses too.