Friday, December 25, 2009

Some things to think about at Christmas...

Dear readers;

This image may be a bit retro - but the essence of the message is still the same.  I wanted to post something more substantial at Christmas - but without any other contributions this will have to do.  Please feel welcome to discuss and comment.  And all the best for the Season.


Tristan Ewins  (blog moderator and owner)

Sunday, December 13, 2009

Principles of Libertarian Socialism – an essay by an anonymous author


Author:  The author prefers to remain anonymous

The author was a young college student with a keen interest in libertarian socialism

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Avram Noam Chomsky is considered one of the greatest intellectual minds of our time. He is a world renowned professor of linguistics and philosophy at the Massachusetts Institute of Technology and has authored over eighty books. Apart from being a professor Noam Chomsky is a well known political activist, dissident, and anarchist. Since the 1960’s Chomsky has been a key figure head of the libertarian socialist movement in the United States.

In this paper, I will explain the dynamics of libertarian socialism along with the common misconceptions that are often attached to its name. Moreover, I will be constructing a concise overview of Chomsky’s background and life. Then I will be reviewing the accomplishments of Chomsky to setup a framework for the discussion of libertarian socialism. I will also explain why libertarian socialists are often opposed to capitalism and to the state by citing several examples of how modern states control and suppress their populace by the manufacture of consent. I will examine of the public relations industry and the multi-national media to show the process of indoctrination in the United States.

By setting up a framework for the study of libertarian socialism I will then proceed to show why this extension is applicable to the United States system of government. This paper will also cover the fundamental ideas and core values of libertarian socialism. I will be explaining what exactly is the goal of libertarian socialism and if the system is sustainable in the long run. I will also be showing the development of libertarian socialism throughout history. I will do this by briefly examining the philosophical contributions of Bakunin, Proudhon and Kropotkin. This is to show the development of the anarchist tradition as well as the libertarian socialist ideology that is closely related to anarchist values. In conclusion, I will be demonstrating the effectiveness of libertarian socialism by looking at the 1936 Spanish Civil war and how the citizens handled themselves for three war-torn years. Finally I will be providing an alternative to our current economic system.

Fundamentals of Libertarian Socialism

To understand the proposal of libertarian socialism one has to understand what exactly libertarian socialism is. David Blake, writer for Z Magazine defines libertarian socialism as: “A group of political philosophies that aspire to create a society without political, economic, or social hierarchies, i.e. a society in which all violent or coercive institutions would be dissolved, and in their place every person would have free and equal access to tools of information and production.” (Blake 1) In other words, libertarian socialism is an anti-authoritarian social system. Liberty, freedom and the right for workers to fraternize and organize democratically are the core principles of this political philosophy. Libertarian socialists see mankind divided between two different social classes. The large majority of people who make up the working class who have little or no real power over their destinies and follow orders and do not benefit fully from their labor. Conversely, the rich minority are property owning individuals who reap the benefits of production and exercise decision making power over the majority.

This tradition could be traced as far back as ancient Greece. Zeno of Citium directly opposed Plato’s idea of a State-Utopia with his idea of a free community without government. He repudiated the intervention of the state and asserted that the sovereignty of the moral law rests in the hands of individuals. “Zeno argued that although the necessary instinct of self-preservation leads humans to egotism, nature has supplied a corrective to it by providing man with another instinct— sociability. Like many anarchists, he believed that if people follow their instincts, they will have no need of law-courts or police, no temples and no public worship, and use no money. (Piering, Cynics)

The anarchist tradition, though often underground, continued throughout modern history, including movements such as the “Free Spirit” in the middle age and the “Diggers” during the English Revolution. This train of thought continued up to the early 19th century when Pierre Joseph Proudhon adopted the term anarchist in its modern day meaning. Proudhon is best known for asserting “Property is Theft” in his essay “What is Property?” Published in 1840. He later published a famous essay ‘What is Government” where he proclaimed:

“To be GOVERNED is to be watched, inspected, spied upon, directed, law-driven, numbered, regulated, enrolled, indoctrinated, preached at, controlled, checked, estimated, valued, censured, commanded, by creatures who have neither the right nor the wisdom nor the virtue to do so. To be GOVERNED is to be at every operation, at every transaction noted, registered, counted, taxed, stamped, measured, numbered, assessed, licensed, authorized, admonished, prevented, forbidden, reformed, corrected, punished. It is, under pretext of public utility, and in the name of the general interest, to be place[d] under contribution, drilled, fleeced, exploited, monopolized, extorted from, squeezed, hoaxed, robbed; then, at the slightest resistance, the first word of complaint, to be repressed, fined, vilified, harassed, hunted down, abused, clubbed, disarmed, bound, choked, imprisoned, judged, condemned, shot, deported, sacrificed, sold, betrayed; and to crown all, mocked, ridiculed, derided, outraged, dishonored. That is government; that is its justice; that is its morality." (Proudhon, General Idea of the Revolution in the Nineteenth Century)

Proudhon was the first prominent anarchist to assert such radical claims dealing with the nature of government and he laid the foundation for other philosophical successors and advocates of libertarian socialism.

The next major leap in the libertarian socialist tradition came from two prominent Russian philosophers. These men were Mikhail Bakunin, the intellectual heir of Proudhon, and Peter Kropotkin, a scientist. Bakunin was the first major proponent of the philosophy of libertarian socialism during the 19th century working class movement in Russia. His philosophy can be summarized by the following quote: “We are convinced that freedom without Socialism is privilege and injustice and that Socialism without freedom is slavery and brutality”. (Bakunin, Conflict with Marxism) Peter Kropotkin is known for adopting the term “Mutual Aid,” which gave an alternative view social Darwinism by concluding that people are socially evolved to cooperate for the benefit of the group and individual alike. His idea of mutualism also offered a fundamental concept of the invention of labor insurance systems and trade unions to be used in democratically controlled enterprises.

Philosophical Contributions of Noam Chomsky

At the point I think it is important to begin to introduce and demonstrate the fundamental structure of Chomsky’s political philosophy. Before fully outlining his intellectual accomplishments, theories, and work, I believe one has to examine Chomsky’s early life to understand where he draws his intellectual viewpoint and analysis from.

Chomsky was born in Philadelphia, Pennsylvania on December 7, 1928. He received his early education at Oak Lane Country Day School and Central High School, Philadelphia. He continued his education at the University of Pennsylvania where he studied linguistics, mathematics, and philosophy. In 1955, he received his Ph. D. from the University of Pennsylvania. Since receiving his Ph. D., Chomsky has taught at Massachusetts Institute of Technology where he now holds the Ferrari P. Ward Chair of Modern Language and Linguistics. (Goodman, The Life and Times)

Chomsky made his reputation in linguistics. He learned some of the historical principles of linguistics from his father, William, who was a Hebrew scholar. In fact, some of his early research, which he did for his Masters, was on the modern spoken Hebrew language. Among many of his accomplishments, he is most famous for his work on generative grammar, which developed from his interest in modern logic and mathematical foundations. As a result, he applied it to the description of natural languages. As a student, Noam was heavily influenced by Zellig Harris, who was Professor of Linguistics at the University of Pennsylvania. It was Chomsky’s sympathy to Harris’s political views that steered him toward work as a graduate student in linguistics. (Goodman, The Life and Times)

From an early age Chomsky was interested in politics and it is said that politics was what brought him into the linguistics field. His political tendencies toward socialism and anarchism are a result of what he calls "the radical Jewish community in New York." (Lyons 6) Since 1965 Chomsky has become one of the leading critics of U.S. foreign policy. He gained fame for publishing a book of essays in 1965 called “American Power and the New Mandarins” which is considered to be one of the most substantial arguments ever against American involvement in Vietnam. Since then Chomsky has become one of the world’s major voices condemning state terrorism and American foreign policy. (Chomsky, Responsibility)

Chomsky’s most important work is “Manufacturing Consent”, which he co-authored with Edward S. Herman. In this book he argues that since mass media outlets are now run by large corporations, they are under the same competitive pressures to produce a profit as other corporations. This pressure to create a stable, profitable business structure invariably distorts the kinds of news items reported, as well as the manner and emphasis in which they are reported. Chomsky argues that this distortion is not a result of conscious design but rather a consequence of market selection. The businesses who happen to favor profits over news quality survive, while those that present a more accurate picture of the world tend to become marginalized. Chomsky demonstrates his thesis by citing numerous case studies dealing with U.S. news coverage of the Vietnam War and other major conflicts since then.

The book further points out issues with the dependency of mass media news outlets upon the government as the major source of news. If a particular outlet is in disfavor with a government, it can be subtly marginalized, which leads to a loss in viewers and readers and thus result in the loss of advertising revenue, which is the primary income for mass media news outlets. To minimize the possibilities of lost revenue, corporations will tend to report news in a tone more favorable to government, business and state administration and giving unfavorable news about government and business less emphasis.

Core Principals of Chomsky’s Thought

Chomsky points out that the core principle of anarchism is the justification of power. Power, unless justified, is inherently illegitimate. The burden of proof is on those in authority to demonstrate why their elevated position is justified. If this burden can't be met, the authority in question should be dismantled. Authority for its own sake is inherently unjustified. An example of a legitimate authority is that exerted by an adult to prevent a young child from wandering into traffic. This idea of power is applied to all forms of governments, social organization and other political institutions and is also applied to anyone who exercises power and dominance over others. To further demonstrate this point further those who are favor state power must meet the burden of proof. The argument that consistently comes up in favor of state power is that governments protect the security of the populace. However nearly 80 percent of the United States population distrusts their government, in turn they see their government acting contrary to the interests of majority while favoring the business interests of the minority. The essential objection that people have regarding power structures is the face that they have little or no influence over decisions that affect them. (Chomsky, Notes on Anarchism)

Libertarian socialists seek to replace unjustified authority with direct democracy, voluntary federation, and popular autonomy in all aspects of life, including communities and economic enterprises. This brings one to examine the next point about libertarian socialism which explores the problems of work relations under capitalism and the economies of nation states. Then it is equally important to present an alternative to this system that is applicable to highly industrialized state structures.

Criticisms of market capitalism

Some problems that are associated with capitalism include: unfair and inefficient distribution of wealth and power, a tendency toward market monopoly or oligopoly, imperialism, and various forms of economic and cultural exploitation. The phenomena such as social alienation, stratification, inequality, unemployment are a result of market instability. This is why there is an inherent tendency towards oligopolistic structures when laissez-faire policies are combined with capitalist private property. An essential aspect of economic freedom is the extension of freedom to have meaningful decision-making control over productive resources. Economist Branko Horvat asserts that it is now well known that capitalist development leads to the concentration of capital, employment and power. It is somewhat less known that it leads to the almost complete destruction of economic freedom.

In contrast, there are many problems regarding the current economic system. However there is an alternative and that alternative is anarcho-syndicalism. The basic principles of anarcho-syndicalism are worker’s solidarity, direct action and democratic self management. Workers solidarity means that all workers regardless of gender or ethnic group are in a similar situation in regard to work management. In the capitalist system, any gains or losses made by some workers from or to management will affect all workers. Therefore, to liberate themselves, all workers must support one another in their class conflict. This goal can be obtained through direct action through trade unionism. This system has vast implications for the workplace because when people employ the basic power of direct decision making power regarding their workplace then this can be carried over to other institutions in society. (Rocker, Anarchism)

Criticisms of Libertarian Socialism

In essence, these are the fundamental values that are held by Noam Chomsky and other libertarian socialists. The conventional view is that libertarian socialism is inherently flawed as a social system. Although this is more often assumed then argued I want to mention a few of the arguments and show that they are shallow and incoherent.

One of the most common arguments that arise when examining libertarian socialism is that free market capitalism will arise when it is suppressed. This argument is inherently true because the free market does arise when the population is suppressed. An example of this would be the Soviet Union during the Cold War. However, the misconception is that libertarian socialists want to get rid of capitalism and the state system. Libertarian socialists do not want to get rid of the principles of free market capitalism but only want to see fundamental changes within the workplace. They advocate self-management, direct democracy and worker’s solidarity within the workplace. The same thing goes for the state system. Chomsky and others would like to see fundamental changes within the state structure, and in time eventually reduce the scope and power of the state structure.

Some capitalist libertarians argue that freedom and equality are in conflict with another, and that promoting equality will inherently require restrictions on liberty, forcing society to choose one or the other as their primary value. This is another good point because historically there are examples of this. During the French revolution, for example, the National Assembly valued equality over freedom, and this led to despotism and tyranny. However, the same situation can be applied to the United States. The Constitution protects freedoms, but does not apply those freedoms equally. This is clearly shown by the discrimination against African Americans when there was still slavery in place during birth of the nation.

However libertarian socialists dismiss this perceived contradiction between freedom and equality as a red herring. Noam Chomsky states that, “human talents vary considerably, within a fixed framework that is characteristic of the species and that permits ample scope for creative work, including the appreciation of the creative achievements of others. This should be a matter of delight rather than a condition to be abhorred.” (Peck 8)

Strengths and Weakness Regarding Libertarian Socialism

After examining the fundamentals of libertarian socialism one can draw its strengths and weaknesses. Some of the strengths include direct democratization of the workplace and community. Here the decision making power is in the hand of each and every individual. With that being the case, people would have more power to control their own destinies. Another major strength of this philosophy is that it is applicable to almost any society. However, since the time it would take to transform an industrialized state to a libertarian society would be long, this can be seen as a weakness. To put in place this ideology would require completely reforming the cultural mindset regarding work relations, politics and other philosophical issues.

Libertarian socialism can be seen as a very radical social and political philosophy. It advocates the restructuring of society by putting in place direct democratic rule in the workplace and community. As a result of this worker solidarity, cooperation, and empathy is produced. Without it there can be no hope for mankind being that man will always be subjected and dependent on political and social institutions that act contrary to the nature of individuals and society.


In final analysis, I would like to explore political theory in general and make three conclusions about the practice. Political Theory in general studies the questions concerning the very nature of government, politics and society. It gives us a framework for asking and solving these problems, however, I think it overlooks some problems associated with worker relationships and the power of community organization. I would also like to address the general consensus that is held by many intellectuals that the majority of people are stupid, ignorant and do not know their own interests. Finally, I want to recognize a new form of economic organization and how it relates to the values of libertarian socialism.

One of the major issues I have when reading many political theorists is that many of them have a very close minded view of the power of the individual. Many theorists and philosophers regard the individual as stupid, and ignorant. But this is inherently untrue. People are extremely creative when given the chance to explore their intuition. When they are suppressed by governments or dictators or other socially paralyzing structures they cannot strive or obtain their goals. However, I do think this trend is changing throughout the modern world. With the rise of technology and the spread of information people are able to communicate and work together like never before. This allows the opportunity for workers and citizens to change the world around them if they wish to. As long as this continues I believe that this trend will not only change the place of the individual in society but the mindset of how society itself should function. I think more will begin to question the very nature of government and their role in society and will come to conclusion that it needs drastic changes.

Secondly, I do not think that the ideas of anarchism are taken very seriously in the intellectual community. I believe there are debatable reasons for this but I want to underline why I believe anarchism can be very successful. During the 1936 Spanish Civil War millions of people were living in a state of anarchy. These people collectively bonded for three years during the outbreak of WWII. They successfully took control over industry, production, and the function of government until they were crushed in 1939. This example shows the power of collective organization without the rule of government. The point I am trying to make is that people can govern themselves if they are given the opportunity. If they are not given this opportunity then I think it is as follows that people will feel indignant towards their government until there is a social revolution.

The final point I want to address the idea of participatory economics and how it can relate to the fundamentals of libertarian socialism and political theory. Participatory economic or Parceon is an economic system that uses participatory decision making as an economic mechanism to guide the production, consumption, and allocation of resources in a society. The underlying values of Parecon relate closely with libertarian socialism because they both seek to implement equality solidarity, diversity, efficiency and worker self-management. Both systems of social and economic organization want to recognize that cooperation and solidarity are the mechanism for society. This system changes the traditional ideas concerning production and consumption. In the traditional capitalist system the buyer is trying to buy the product at the lowest possible price and the seller is trying to sell at the highest possible price. As follows there is a resentment that is between the buyer and seller. Under this system the buyer and seller would work together to reach a reasonable price for the transition. (Routledge, 221)

Another primary reason for the advocating of this new economic system is the concern for externalities that are the result of the market system. Markets by their nature operate only in the interests of buyer and seller - while the others affected by the transaction have no voice or input. For example, with regard to the automobile industry – and also the oil industry - others are affected by pollution, environmental destruction and a higher price for fuel. As a result of long-term pollution by private industry citizens and taxpayers end up bearing the costs and have to pay usually in the form of taxes. As a result of the nature of the market system it follows that this system is not self-sustainable – that its contradictions will lead to its own demise. (Routledge, 85)

In final evaluation of libertarian socialism and the fundamental teachings of Noam Chomsky I believe that there is no reason to accept the doctrines crafted to legitimise power and privilege. Decisions made within institutions that are subject to human will must face the test of legitimacy. If they do not meet the test, they must be replaced by other institutions that are freer and more just.

With that being underlined I will close by this quote:

"If you look at history, even recent history, you see that there is indeed progress. . . . Over time, the cycle is clearly, generally upwards. And it doesn't happen by laws of nature. And it doesn't happen by social laws. . . . It happens as a result of hard work by dedicated people who are willing to look at problems honestly, to look at them without illusions, and to go to work chipping away at them, with no guarantee of success — in fact, with a need for a rather high tolerance for failure along the way, and plenty of disappointments." (Chomsky, inclusiondaily)


Baake, David. "Prospects for Libertarian Socialism." Zmag (June 2005)

Chomsky, Noam “Anarchism and Power” (22 April 2002) > . (23 April 2009)

Chomsky, Noam “Decline of the Democratic Ideal.” Z Magazine (May 1990).

< > . (23 March 2009).

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< > . (23 March 2009).

Chomsky, Noam “How US Democracy Triumphed Again.” The Independent 14 Jan. 2001.

< > . (23 March 2009)

Chomsky, Noam “Humanitarian Intervention.” Boston Review (09 April 2009)

Chomsky, Noam “Notes on Anarchism.” Anarchism: From Theory to Practice 21 May. 1970.

< > . (23 March 2009)

< > . (23 March 2009)

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Social, Political and Legal Philosophy (1968): 1-9.

Chomsky, Noam “Rollback.” Z Magazine Jan.-May 1995.

<> . (23 March 2009)

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Chomsky, Noam “The Disconnect in US Democracy.” Khaleej Times 29 Oct. 2004.

< > . (23 March 2009)

Chomsky, Noam “The Passion for Free Markets.” Z Magazine May 1997.

< > . (23 March 2009)

Chomsky, Noam “The Responsibility of Intellectuals”. The New York Review of Books

(23, April 2009)

Chomsky, Noam > . (23 April 2009)

Goodman, Amy “The Life and Times of Noam Chomsky.” (26 November 2004) > . (23 April 2009)

Lyons, John. “Modern Masters” The Viking Press 1970. (09 April 2009)

< > . (December 1993, January, 1994).

Peck, James. “The Chomsky Reader.” Pantheon Books (1987). . (23 March 2009)

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Routhledge, Hahnel “Economic Justice and Democracy: From Competition to Cooperation”

(23 April 2009)

Sunday, December 6, 2009

Light in Darkness: Mondragon and the Global Economic Meltdown

nb: This week's post is unusual as it is an expansive essay (approx 5000 words) - treating the development of the Mondragon co-operative in Spain in great detail. While there's a lot of reading here, Mathews demonstrates that a different kind of world is possible - with Mondragon as a case in point. We won't be publishing as expansive material as this often - but for those interested in economic democracy this makes compelling reading...

nb: If you enjoy this article pls also join our Facebook group - to link up with other readers, and to receive regular updates on new material.


Finally: we thank Arena Magazine and Race Mathews himself for allowing us to reproduce this material.

Originally published in Arena Magazine: No 102 10/11/09 pp 16-22.


by Race Mathews

The current economic crisis will not have been in vain if the world is reminded that grass roots initiative can triumph even over seemingly overwhelming adversity. In the aftermath of the devastation of the Basque region of Spain in the Spanish Civil War, a young priest, Don Jose Maria Arizmendiarrieta, himself only recently released from concentration camp confinement and narrowly spared imminent execution, was sent by his bishop in 1941 to the small steel industry town of Mondragon. It was here over the subsequent decade and a half that he through painstaking pastoral care, grassroots organization, community development, consciousness-raising and technical education laid secure foundations for the great complex of some 260 worker-owned industrial, retail, agricultural, construction, service and support co-operatives and associated entities that the world now knows as the Mondragon Co-operative Corporation.

From a standing start in 1956, the MCC has grown to the point where by mid-2008 it was the seventh largest business group in Spain. Annual sales increased between 2006 and 2007 by 12.4 per cent to some $US20 billion, and overall employment by 24 per cent, from 83,601 to 103,731. Exports accounted for 56.9 per cent of industrial co-operative sales, and were up in value by 8.6 per cent. Mondragon co-operatives now own or joint venture some 114 local and overseas subsidiaries.

Hard-hit by the economic meltdown as like other business the co-operatives now find themselves, their members are tightening their belts in a further exercise of the solidarity that has enabled them to weather previous major downturns, and achieve new heights. For example, in 2008 worker owners at the Fagor appliance co-operative elected to forego the additional four-week’s pay normally due to them over the Christmas period, and have subsequently cut their pay by eight per cent. As the MCC’s Human Resources Director, Mikel Zabala, points out, “We are private companies that work in the same market as everybody else. We are exposed to the same conditions as our competitors”. What then are the attributes to which Mondragon owes its remarkable success?

Industrial Co-operatives

The basic building blocks of the MCC have been its industrial co-operatives. The industrial co-operatives are owned and operated by their workers. The workers share equally in the profits - and, on occasion, losses - of the co-operatives, and have an equal say in their governance. That they are able to do so is due to the unique structures and systems of governance and financial management which the Mondragon co-operatives have developed. In the case of governance, the workers in a co-operative have their say in the first instance through its General Assembly, where the performance of the co-operative is discussed and its policies determined. The workers also elect a Governing Council, which conducts the affairs of the co-operative between Assembly meetings, and an Audit Committee - referred to by some as the "Watchdog Committee" - which monitors the co-operative's financial operations and its compliance with its formally established policies and procedures. Only members of the co-operative - all of them workers - are eligible to stand, and voting is on a one member/ one vote basis.

Successful candidates hold office for a four-year term, but continue to be paid their normal salaries and receive no compensation for their Council responsibilities. Council meetings are normally held before the working-day begins, and members then resume their normal workplace duties. The Council appoints a Manager for the co-operative on a four-year contract, which may be renewed subject to a mandatory review of his performance by the Council. The Manager may attend Council meetings in an advisory capacity, but is not a member and has no vote. There is a separate Management Council where the top executives and officers of the co-operative liase with one another on a monthly basis. The separation of the Management Council from the Governing Council reflects the clear distinction which the co-operatives draw between the governance function which is properly the prerogative of their members and the carrying on of operations for which management is responsible.

A final body - the Social Council - is elected annually, by and from shop-floor groups of from twenty to thirty workers. Members of the Social Council hold office for a two-year terms, and may offer themselves for re-election. The Council is a unique structure, with a highly distinctive contribution to the well-being of the co-operative. Whereas the Governing Council represents the members of a co-operative primarily in their capacity as its co-owners, the Social Council represents them primarily as workers. The Council's character in this respect reflects in part the fact that the co-operatives were established during a period when trade unions had been outlawed by the Franco government. Franco's negation of workers' rights was unacceptable to Arizmendiarrieta and his associates. In effect, the Social Council has had built into it the union function of enabling members to monitor, question and - if necessary - oppose the policies of the Governing Council and management. The Social Council is required to give advice to the Governing Council on industrial and personnel issues - for example, working hours, the evaluation and classification of jobs, and occupational health and safety - which the Governing Council must consider before its decisions on them are finalised. In recent years, some co-operatives have mandated their Social Councils to bargain formally for members with their Governing Councils.

The earnings of a Mondragon co-operative are the property of its members. In place of wages, members are paid monthly advances - referred to as anticipos - against the income their co-operative expects to receive. Two further advances required by Spanish custom are made available at Christmas and for the summer holiday period. The co-operatives observe a "principle of external solidarity", under which no advance should exceed by more than a narrow margin the wages paid for comparable work by nearby private sector businesses. The level of each member's advance is determined in the first instance by a labour value rating which the Social Council of the co-operative assigns to the job. Overall, incomes are kept as equal as possible. The highest advances a co-operative pays its members cannot exceed the lowest by more than eight to one. By 1990, members had had an estimated increase in their purchasing power since 1956 of around 250%.

A further share of the co-operative's earnings is credited to the members as capital. The capital structure has been designed to produce the greatest possible consciousness on the part of the each member that he is a stake-holder in the co-operative. The identification is achieved initially by requiring as a condition of entry to the co-operative that each member should make a direct personal contribution to its capital. There is an entry fee which currently stands at about $US12,500. Payment can be made on the basis of a 25% initial contribution, followed by monthly instalments. The co-operative then establishes an individual capital account for the member, to which 70% of his initial contribution is credited. The capital accounts earn interest at an agreed rate, and are credited each year with - say - 40% of the co-operative's surplus, apportioned among members on the basis of their salary grades and the hours worked. Members may draw on the interest accumulated in their accounts, or use the accounts as collateral for personal loans, but the principal cannot normally be touched until they resign or retire. Payouts from the capital accounts of members currently retiring in Mondragon - over and above their superannuation entitlements - are in some instances in excess of $US100,000. A further fifty percent of the co-operative's surplus goes to its permanent reserves, while Spanish law requires 10% to be set aside for social and educational purposes. A co-operative which incurs a loss may require its members to re-invest the extra Christmas or summer holiday advances which they would otherwise have taken in cash. Alternatively, they can forego the interest which would otherwise have been paid on their capital accounts. In extreme cases, the value of capital accounts can be written down or even written off.

Worker/Consumer Co-operatives

Mondragon's initial focus on industrial co-operatives was expanded by the creation in 1968 of its Eroski worker/consumer co-operative. Reflecting the overall Mondragon approach, Eroski - unlike traditional consumer co-operatives - is not limited to consumer members. Instead, its membership falls into two categories, namely, the workers who operate its outlets and the consumers who shop at them. The Governing Council has equal numbers of worker and consumer members, with the position of chairman always being held by a consumer. A further difference is that Eroski does not pay the traditional consumer co-operative dividend, but instead concentrates on low prices, healthy and environmentally-friendly products and consumer education and advocacy.

Eroski is today the most rapidly expanding component of the MCC, with some 2,441 retail outlets, ranging in size from petrol stations and small franchise stores to hyper-markets and shopping malls, in locations that now extend beyond Spain to France and Andorra. It is a key participant in the Spanish Confederation of Consumer Co-operatives, speaks for the Confederation in its dealings with government and the media and is also active in the affairs of the Consumer Advisory Council in Brussels.

Mondragon Mark I

The industrial, worker/consumer and service co-operatives at Mondragon have benefited from a unique system of second-order or support co-operatives and groups. Just as the primary co-operatives were formed in response to a pressing need on the part of workers for jobs - and of the Basque region more generally for economic development - so the secondary co-operatives have been a response to the need of the primary co-operatives to co-ordinate their activities and access capital and support services such as social insurance, education and training and research and development. The co-ordination and support structures and procedures - as distinct from the primary or frontline co-operatives - have undergone major changes. A broad familiarity with the arrangements in their original form - with what was in effect Mondragon Mark I - is needed in order to properly understand the nature and purpose of the Mondragon Mark II which in key respects has replaced them.

The Caja Laboral Credit Union

The core and nerve centre of what is now the MCC was originally the Caja. Arizmendiarrieta realised at a very early stage in the life of the group that expanding the existing co-operatives and creating new ones would require reliable access to capital on affordable terms. "A co-operative", he wrote, "must not condemn itself to the sole alternative of self-financing". As has been seen, his insight resulted in 1959 in the establishment of the Caja in order to mobilise capital for the co-operatives from the local and regional communities. The slogan used by the Caja in the early stages of its development was "savings or suitcases", indicating that local savings were necessary in order for there to be local jobs. The Caja also provided a means for the co-operatives to manage the capital held in their permanent reserves and individual capital accounts, so enabling them to retain within the group all of their surpluses other than the 10% allocated by law to community projects. The effect overall was to free the co-operatives from the capital constraints which otherwise would so drastically have curtailed their development. The Caja enabled the co-operatives to borrow at interest rates which were 3% to 4% below those of conventional financial intermediaries.

From functioning purely as a source of capital for the co-operatives, the Caja then moved on to become the mechanism through which their association with one another was formalised and their activities integrated. The individual co-operatives were linked to the Caja through a Contract of Association which set out in detail their respective obligations and entitlements. For example, it was a requirement of the Contract of Association that an affiliated co-operative should adhere to an agreed system of wage levels and ratios. Returns to members on their capital contributions should be at a fixed rate on interest. The co-operative should invest in the Caja and the surplus cash and liquid assets of the co-operative should be held for it on deposit by the Caja. The co-operative's deposits with the Caja should also include all holdings on behalf of its members, such as pension funds, social security funds, and workers' share capital. The co-operative should adopt a five year budget and report on it to the Caja at monthly intervals. The financial affairs of the co-operative should be subject to audit by the Caja at intervals of no more than four years.

The Caja lastly had a key role in developing new co-operatives, advising and otherwise helping out co-operatives which were experiencing difficulties and, more generally, providing an integrated mix of services for co-operatives in all stages of their development. These functions of the Caja were performed by its Empresarial Division. The Division consisted of seven departments - Advice and Consultation; Studies; Agricultural and Food Promotion; Industrial Promotion; Intervention; Auditing and Information; and Urban Planning and Building - with around 120 worker-members.

Where new co-operatives were concerned, a group of workers who were interested in establishing a new venture had first to find a product or service for which they believed there was a market, along with a manager. They were then in a position where an approach could be made to the Empresarial Division. If the Division believed that the proposal was sound, it assigned an adviser - sometimes known as the "godfather" - to the group. The group in turn registered as a co-operative and accepted a loan to cover a salary for the manager while pre-feasibility and feasibility studies were conducted. The studies usually lasted between eighteen months and two years. In the course of that period, the group's preferred product might be discarded in favour of an alternative drawn from the ideas bank which the Division maintained from its own market research. Attention then focused on factors such as factory design, production processes, marketing strategies and export opportunities. The completed study was presented to the Operations Committee of the Banking Division of the Caja, which determined whether the venture should be approved. Where a co-operative proceeded, the Empresarial Division godfather usually went on working with its manager until the break-even point was reached. The co-operative and the Division then remained in touch through the monthly return of operating and financial information the co-operative agreed to provide as a condition of its Contract of Association. The information was stored in a computerised data bank, so enabling the Division to at any time call up a comprehensive account of the status of the co-operative and the trends currently being experienced.

Where an established co-operative experienced difficulties, the Empresarial Division had the capacity to help out through the professional services of its Intervention Department. The data base compiled from the monthly returns of the affiliated co-operatives enabled the Department to have emerging problems brought to its attention, in some cases earlier even than the managers of the co-operative directly involved. An intervenor was then appointed, who assessed the situation of the co-operative in terms of three categories of risk. A summary of the categories by two American scholars reads in part:

1. High Risk. The life of the co-operative is threatened. The intervenor reviews every aspect of operations and in effect takes over management on a full-time basis until a reorganisation plan is approved or the co-operative must be closed. Interest payments on outstanding loans are suspended until the plan is in place.

2. Medium Risk. Bankrupcy is not imminent but could occur in the near future. In such cases the intervenor spends at least one day each week at the co-operative during the reorganisation but does not take over the management of the firm. Interest on loans is reduced temporarily by - say - half, but returns to the full rate as the reorganisation progresses.

3. Warning or alert level. Here the threat of failure is not imminent but current trends are negative, suggesting a need for remedial action that may be beyond the capacity of the co-operative. No interest rate concessions are offered, as it is anticipated that the intervention will make the interest burden manageable.

Once the seriousness of the situation has been determined, the intervenor has the task of working out with the co-operative a new business and re-organisation plan.

The plan might require changes in the marketing strategies, manufacturing methods or product mix of the co-operative. Other changes might involve the organisational structure of the co-operative or the appointees currently occupying its key management positions. Members might be required to accept reductions in their anticipos or contribute additional capital. Where in extreme cases a reduction in the workforce was necessary, it fell to the Social Council to identify in conjunction with management those members who were to be retained in their current positions, those who were to move to new positions and those who were required to leave, normally by transferring to another co-operative whose business was expanding. Once agreement on the plan had been reached, the co-operative was responsible for securing approval of it from the Financial Division of the Caja. The Financial Division was required to determine whether interest on the co-operative's loans should be suspended or reduced or in what other ways - if any - the co-operative should be assisted.

The mutuality of interest between the Caja and the primary co-operatives which are linked with it through their Contracts of Association - together with the credit union's functions in regard to the co-operatives of capital mobilisation and management, integration and support - were entrenched in its structure and governance. Forty-two percent of the delegates to the General Assembly of the Caja are from its workers and 58% from the affilated co-operatives. Seven seats on the Board are for the affiliated co-operatives, four for workers in the Caja and one for a representative of wider sectorial groupings of co-operatives. Rather than the Caja's workers having allocated to them a 40% share of its annual surplus as is the case in the affiliated co-operatives, their capital accounts are credited with the average of the amounts credited to members of the affiliated co-operative. The Caja has succeeded so spectacularly as to have now become effectively the tenth largest bank in Spain. Its assets are now so large that loans to the co-operatives now account for no more than 25% of its overall lending - or 10% of its capital - with the balance available for regional economic development and other investment projects, often in partnership with the Basque government. Its example triumphantly vindicates Arizmendiarrieta's faith in the capacity of working people to provide for themselves through co-operation and economic solidarity the jobs for which they can no longer rely on others.

Lagun-Aro Social Insurance Co-operative

A second support co-operative - the Lagun-Aro social insurance co-operative - began as a division of the Caja. Being co-owners of the businesses where they work instead of employees meant at the time that members of the Mondragon co-operatives were ineligible for health and retirement benefits under the Spanish social security system. What was originally the social insurance division of the Caja was established to remedy the deficiency, by providing a fund to which the co-operatives could subscribe through pay-roll deductions and from which benefits for their members could be drawn. In 1967, the division became independent of the Caja as Lagun-Aro, with a Governing Council which included representatives of the co-operatives affiliated with it. The functions and service-mix of the co-operative have varied over time, reflecting changing needs and government policies. The health care clinic Lagun-Aro conducted at Mondragon for many years was taken over by the Basque government in 1987, as a model for other towns in the province. Rather than administering pensions as previously on an in-house basis, Lagun-aro now contracts out the function to a fund - Mutualidad de Autonomos. - conducted by the state. At the same time, a general insurance subsidiary - Seguros Lagun Aro - and a life insurance subsidiary - Seguros Lagun Aro Vida - have been established, as have subsidiaries for leasing and consumer finance - Aroleasing and Arofinance - and Lagun-Aro Intercoop (Max Centre), a subsidiary for the development of shopping malls in conjunction with the Eroski worker/consumer co-operatives.

Hezibide Elkartea Education and Training Co-operative

A third support group - the Hezibide Elkartea - stemmed from the establishment by Arizmendiarrieta of the training school for apprentices in Mondragon in 1943 and of the League of Education and Culture - a body to promote and co-ordinate education on all levels for all children and adults - in 1948. The apprentice school and the League played a key part in the consciousness-raising through which the establishment of the first of the industrial co-operatives - Ulgor - was instigated. The Hezibide Elkartea has come to cater for programs ranging from day-care to advanced technical and management skilling to adult education. The apprentice school is now a university-level polytechnical college - the Eskola Politeknikoa Jose Maria Arizmendiarrietra. Over and above its mainstream teaching programs, the Hezibide Elkartea brings together specialist bodies such as the Saiolan centre for new business activities education, training and development; the Goeir centre for the co-ordination and promotion of overseas postgraduate engineering and technical studies; the Eteo school of business management; the Iraunkor centre for continuing education and in-company training; the Ahizke-CIM centre for language studies; and the Otalora Centre for co-operative research, education and management training.

Students at the Eskola Politeknikoa have a co-operative of their own - Actividad Laboral Erscolar Cooperativa or, for short, Alecoop - that enables them to support themselves financially during their courses, while at the same time obtaining a hands-on experience of how co-operatives work. A further network of educational co-operatives offers a bi-lingual education in the Basque and Spanish languages at the pre-school, primary and lower secondary levels. Funds for the schools are drawn in part for the social allocations of the Caja and its affiliated industrial co-operatives. Their General Assemblies include staff, parent, student and affiliate members. Faced in 1993 with demands by the Basque government that schools receiving government funds should join the government system, 80% of the schooling co-operatives voted for rejecting the government's money and retaining their independence.

Ikerlan Research and Development Co-operative

A fourth support co-operative - the Ikerlan research and development co-operative - reflects the high priority which the Mondragon co-operatives have attached to keeping abreast of modern technology. This pattern, like so much else about Mondragon, was shaped by Arizmendiarrieta, through his initial choice of technical education as the means of bringing the community together and instigating change, and his insistence throughout that by mastering technology it would be possible to bring about higher forms of human and social development. "Our people", he argued, "require of our men the development of the means to scale the heights of scientific knowledge, which are the bases of progress". Arizmendiarrieta's advice caused research and development to be pursued vigorously from the start by individual co-operatives and the Mondragon polytechnical college, but this allowed insufficient scope for inter-disciplinary problem-solving and cross-fertilisation within the overall scientific and technical workforce. Ikerlan was hived-off from the college in 1977 as a separate support co-operative, in order to overcome these shortcomings, and further strengthen the competitiveness of the industrial co-operatives in the export markets where their future was seen to lie. As in other support co-operatives, the General Assembly consists of the worker/members of the co-operative and representatives of the affiliated primary co-operatives.

An extensive staff of highly qualified engineers and technicians enables Ikerlan to provide contract research and development services for co-operatives affiliated with the MCC, private sector businesses other than those in direct competition with the co-operatives and agencies of the Basque government. Ikerlan is also an active member of the European Association of Contracted Research Organisations, and offers competitive research fellowships for visiting scientists and engineers under industry re-vitalisation programs funded by the Basque government. A further support co-operative - Ideko - specialises in machine tools research and development.

Co-operative Groups

Over and above its unique support co-operatives, Mondragon was reinforced by a structure of groups or divisions which linked individual co-operatives together, both geographically on the basis of their proximity to one another, and by similarity of the sectoral activities in which they engage. Geographically, there were twelve regional groups of co-operatives. The structure stemmed from the rapid growth of the original household appliances co-operative, Ulgor, in the early nineteen-sixties. Faced with a co-operative which was outstripping by far the limits within which the advantages of growth could be achieved without succumbing to the bureaucratic rigidities, Arizmendiarrieta and his associates developed a policy of spinning-off those sections where a level of efficiency was achieved such as would enable them to function successfully as independent entities.

In this model, the components manufactured by the new co-operatives had an assured market in Ulgor, but could also be sold to other buyers. In order to balance the interests of the new co-operative with those remaining behind in the parent body - and to avoid loading the new co-operative with costs such as the establishment of marketing and other specialist divisions of its own - a co-operative group, ULARCO, was formed from Ulgor itself, the Arrasate co-operative which supplied machine tools for Ulgor and the Copreci co-operative which supplied Ulgor with parts for its gas stoves and heaters. A fourth member - Ederlan - resulted from a private sector foundry being taken over and combined with the foundry at Ulgor. Fagor Electrotechnica became the fifth member when it was spun-off by the three foundation co-operatives, as an independent co-operative manufacturing electronic components and equipment.

ULARCO adopted a structure similar to that of the individual co-operatives. Its General Assembly comprised the members of the governing councils, management councils and audit committees of the affiliated co-operatives, and was responsible for determining the policies of the group, making decisions about admissions to - and exclusions from - the group, and approving all accounts and budgets. There was also a Governing Council, made up of one member from each of the affiliated co-operatives, a General Management Committee chosen by the Governing Council and a Central Social Council comprising one representative from each of the Social Councils of the affiliates. Similar structures were adopted by the other regional groups.

The groups enabled key planning and co-ordinating functions to be undertaken in the interests of their affiliates. From 30% to 100% of the surpluses earned - or losses incurred - by individual co-operatives were pooled through their regional groups, so providing further protection for the co-operatives against the problems to which short-term market fluctuations might otherwise expose them. The groups facilitated the exchange of members between co-operatives whose markets were expanding and those experiencing contractions. Dialogue between the Governing Councils and Central Social Councils of the groups - reflecting in part discussion within and between the affiliated co-operatives - in some instances played a major part in enabling the co-operatives to implement the re-positioning and re-structuring forced on them by Spain's entry into the European Community and the economic stringencies of the nineteen-eighties and nineteen-nineties.

Mondragon Mark II

What has been effectively the replacement of Mondragon Mark I by Mondragon Mark II between 1987 and 1991 reflects the capacity of the co-operatives to re-invent themselves in the light of new challenges and changing circumstances. A series of congresses of the co-operatives since 1987 - drawing in part on recommendations from the Caja adopted by a pre-constituente congress in 1984 - has radically altered the original structure, so that the co-operatives now relate to one another in new ways. The governing philosophy of the co-operatives was codified by the 1987 Congress in an explicit ten-point declaration known as "The Basic Principles of the Mondragon Experience". The ten points are respectively open admission, democratic organisation, sovereignty of labour, the instrumental and subordinate character of capital, participatory management, payment solidarity, interco-operation, social transformation, universality and education. The declaration reads in part that admission to a Mondragon co-operative is available without discrimination on religious, political or ethical grounds or due to gender, subject only to applicants agreeing to be be bound by the principles and proving that they are professionally capable of carrying out such jobs as may be available. Members participate in the governance of the co-operative on a "one member, one vote" basis, irrespective of their positions, seniority, hours worked or capital contributions. The co-operative recognises the primacy of labour in its organisation and the distribution of the wealth created; rejects the contracting of workers who are not admitted to membership; and seeks to provide work for all who are in need of it.

Capital is seen as being an instrument, subordinate to labour and subject to a maximum rate of return. The democratic character of the co-operative implies a progressive extension of opportunities for involvement by its members in business management, through mechanisms and channels for participation, freedom of information, consultation, implementation of social and professional training plans for members and the establishment of internal promotion as the basic means of filling positions of higher professional responsibility. Solidarity should be observed externally, so that rates for equal work are roughly the same within the co-operative as in the wider community. There should be co-operation by co-operatives, both within and between sectoral groups, and by the MCC with the Basque and international co-operative movements. The MCC should contribute to economic and social reconstruction and to the creation of a Basque society which is more free, just and expressive of solidarity; act in solidarity with all those working for economic democracy in the sphere of the social economy and championing the objectives of peace, justice and development which are essential features of international co-operativism; and provide education and training in co-operation for its members, management bodies and in particular the younger generation of members on whom its future depends. The Basic Principles broadly reflect - and in key aspects improve upon - those of the International Co-operative Alliance.

The 1987 Congress also established a special fund - the Interco-operative Solidarity Fund (Fiso) - to help out co-operatives in economic difficulties with resources over and above those available from the Caja, and so avoid job losses. A further fund - the Fund for Education and Inter-co-operative Development (FEPI) - was established by the 1989 Congress, to assist participation by smaller co-operatives in larger and longer-range projects, with funds drawn from the social contributions of those which are larger or better-off. The 1991 Congress endorsed recommendations from the Governing Council in 1989 for the move to the sectoral groups and the establishment of the MCC. The Caja has surrendered its central co-ordinating functions, and is now a conventional co-operative financial intermediary, lending largely to private sector businesses. Co-ordination and strategic planning are now the responsibility of the MCC. The MCC is a tripartite structure, made up at its base of three sectoral groups - the Financial Group, the Industrial Group and the Distribution Goods Group. The Industrial Group in turn has a further eight sub-groups, namely Capital Goods I, Capital Goods II, Automotive Components, Domestic Appliance Components, Industrial Components and Services, Construction, and Household Goods.

The General Assembly of each co-operative affiliated with a group sends a delegate to a Group Assembly. The Group also has a General Council made up of the chairperson of each co-operative together a further member from each co-operative's Board, and a Management Committee consisting of the managers of the co-operatives. The General Council selects a member of the Management Council as the Group CEO. The aim is to have a common business strategy for each sector, including the adoption of common identifiers such as brand names, trademarks and logos. The groups have also had devolved to them the intervention function which was previously performed by the Empresarial Division of the Caja. Other function of the Empresarial Division have been assumed by the Lankide Suztaketa I and Lankide Sustaketa II management and engineering consultancy co-operatives, the Saiolan business activities development co-operative and an MCC Services Co-operative within the corporate headquarters of the MCC.

The groups are responsible for the management of workers whose co-operatives cease to have positions for them. Workers so affected are normally relocated - and where necessary re-trained - for positions in co-operatives whose businesses are expanding. While the objective of protecting employment has largely been achieved, the groups have not necessarily in all cases been thanked for their efforts. Transfers are seen to have generated frustration, rejection and ill-will among these affected by them. "The transferee", in the view of a major study, "feels himself/herself to have been 'managed' rather than consulted; feels less a co-operative member than the rest, as if he/she were a second-class citizen".

Members of the co-operatives affiliated with the MCC elect delegates to a Mondragon Co-operative Congress. The Congress meets at intervals of not more than two years, to consider the philosophy, policies and operation of the MCC. Two further bodies - the Standing Committee and General Council of the Congress - look after the affairs of the Congress between its meetings. The Standing Committee consists of the president, vice-president and secretary of the Congress, together with representatives from each of co-operative groups and secondary support co-operatives. The members of the Council are the heads of the co-operative groups and support co-operatives. Congress decisions "in general will have the character of recommendations to the co-operatives represented in the Congress". In order for a decision to be binding on the co-operatives, "it must be proposed by the Governing Council, be presented by the Standing Committee and be approved by the full Congress by an absolute majority".


In the face of the world’s economic vicissitudes, Mondragon has been steadfast in its adherence to the fundamental principles with which its founders endowed it, and continues to enlarge the scope of their application. Eroski currently is adopting new measures to enfranchise the 35,000 of its 50,000 workers who are not currently worker members. The co-operatives have entered into a solemn commitment to extend worker ownership measures to their local and overseas subsidiaries on a case by case basis, consistent with their differing cultural, legal and financial circumstances.

In a passage written a few days before his death in 1976. Arizmendiarrieta wrote in part:

Hand in hand, of one mind, renewed, united in work, through work, in our small land we shall create a more human environment for everyone and we shall improve this land. We shall include villages and towns in our new equality; the people and everything else: "Ever forward". Nobody shall be slave or master to anyone, everyone shall simply work for the benefit of everyone else, and we shall have to behave differently in the way we work. This shall be our human and progressive union - a union which can be created by the people.

It is not necessary for us to suppose that the Mondragon model can be transplanted in its entirety to other countries. What is required of us is rather that we should take from Arizmendiarrieta the message of hope his words hold out to us, study such aspects of the Mondragon experience as are relevant to our needs and circumstances and open our minds to what it can teach. Arizmendiarrieta summarised the Mondragon approach as "We build the road as we travel". The question in these straitened times is whether we will make for ourselves the future of our choice - whether we will take back control over our lives and destinies by the co-operative means whose availability Mondragon so plainly demonstrates - or by default allow others to choose the future for us.

nb: Race Mathews' account of the ideas behind Mondragon and why and how the co-operatives work - 'Jobs of Our Own: Building a Stakeholder Society' - is available in a new US edition from or the publishers, The Distributist Press, at:

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