This is a response to a comment posted on my previous post:

Bill,

I posted a response to your comment earlier but the computer got shut off before I could save it.

I am not necessarily in a position to give too much advice on this subject at this point in a very concrete sense.

However I will say this: Your question is one that probably many people who look at MCC from outside and want to apply the model also make. I think nevertheless that is not the right approach. Certainly, there are bits and pieces that would be useful for someone thinking about starting a coop or working in one now. But from my point of view, what is really necessary to look at when studying the coops is looking at the basis of the coops, that is their founding and the development of their values and early institutions.

Many people will tell you that replicating Mondragón is impossible because of the unique cultural of Basques, historic and political situation under Franco and the industrial history of the region etc. I believe thinking about these issues is basically a waste of time when considering applying lessons from the coops. What is significant is that a small group of individuals lead by one dynamic leader (Fr. Jose Maria) founded a school, where they trained scores of young people in the same values and vision and created a community around those ideas. This school was founded 12 or 13 years BEFORE the first coop was started. In addition during this time, students went abroad learned practical skills and engineering, studied other social economic models and businesses. One MCC founder described it as a period of party preparation or formation, in which leaders were developed, values shared and a vision for development clarified.
In my opinion this is by far the most significant lesson of MCC. I am not suggesting that to start a coop it is necessary to found a school for 12 years, but rather that the approach to economic development of this kind starts with a core group of people who have a shared vision and a way of inculcating those values into young people or new comers to the group. The structures that were subsequently created by MCC are a result of the education of the early students and other founders in that school and the leadership of one priest. The subsequent trajectory of MCC is best understood in terms of that period. This is certainly a subject I will be returning to.

Last Tuesday the 11th we were visited by, Manolo Quevedo, the founder of Ikerlan, the first research center at MCC. Manolo was another early disciple of Fr. Arizmendiarrieta. He was also founder of Alecop, which is a program for university students to gain experience, specifically in a coop environment, while earning money to pay for their education. He didn't have enough time to go into depth about Alecop, however, I will be meeting him next week for coffe to talk more specifically about it. He mostly talked about Ikerlan so that is what I will focus on today.

Ikerlan ws founded more then 30 years ago by Caja Laboral (the MCC bank and its central institution) as a way to bring technical solutions to the coops. Ikerlan is one of several innovation centers in MCC, but it was the first and for most of its history the only one. A portion of its work is contract I+D for outside firms, for MCC firms and research on emerging technologies. Ikerlan´s specific areas of expertise are improvement in production processes and production design, product design and energy products and processes.

Prior to the founding of Ikerlan most production by MCC coops was done by buying the rights to use a patent from a foreign company, allowing them to be the exclusive producers of that product in Spain. This allowed companies to develop their sophistication and technical competency. However, it did not help them develop technologically. After the founding of Ikerlan, the idea was that new technology could be developed for coops and that technical solutions could be found for coops with very specific production needs. During this time Ikerlan was funded exclusively by MCC. Work was evenly divided between specific projects for MCC coops and research on new technologies.

In the early 80´s two changes come about, 1st Ikerlan begins to receive money from the regional government (approximately half of its budget) and 2nd they begin to take on research projects from all over Europe. At a certain point Ikerlan begins to have an identity crisis, because the majority of its work is coming from outside of MCC companies, they are being stretched in two directions.

Eventually they change their policy about working with non-MCC firms. They decide they will continue to do these projects, but with the understanding that they will only do projects that are relevant to MCC industries or that will allow them to gain technical knowledge that will be useful to the coops. The strategy of Ikerlan becomes very clear, to develop new technologies for coops, solve technical problems and understand and transfer emerging technologies to the coops from external sources. Outside projects would always be considered based on their degree of utility to the MCC firms.

Mostly he talked about the historyof Ikerlan, so after my meeting with Manolo on Monday, I will try to get a little more info its current situation and relationship with the coops.

Today was the second day of my Master's class and we talked for the first art about entrepreneurship and our business plans. For the last four hours of class however we were joined by Antonio Cancelos, Founder of the Eroski (click to see a previous post on Eroski) retail chain and former director of the MCC. He was truly a dynamic and energetic speaker. Cancelos was the head of a local coop grocery store in the town of Eibar (about a half hour away from Mondragón) in the mid sixties he saw the need to join together with other coops in the region to form a larger entity. By 1970 this organization had become Eroski.
As I explained in my previous post on Eroski at a certain point in the 1980´s Eroski underwent a rapid expansion in all of Spain. This was done to head off the arrival of its competitors, such as the French retail chains and perhaps even companies like Wal-Mart. In order to expand they developed Hipermercados (like Supercenters that include food and all kinds of other retail items) and a network of hundreds of smaller stores as well as an alliance with a regional cooperative chain in Valencia called Consum. In order to finance this bold expansion of what had once been two relatively small and regional chains into a national chain capable of competing head-to-head with multinationals, Eroski had to get creative. Aside from forming a partnership with Consum (which fronted only 5% of what Eroski did) they reached out to several investors, limiting themselves to quasi-governmental agencies or non- profits and also the Italian Cooperative chain Coop Italia. With this capital they formed various holding companies and for each individual store the holding group provided 51% of the capital and local partners like ONCE (National Spanish Organization of the Blind) provided the rest of the capital. In this way they were able to multiple their capital to fund the expansion. After a number of years as their new businesses became profitable they were able to fund everything on their own. It also should be noted that they did not recieve money from Caja Laboral.

In the mid-90s Cancelos became the director of MCC, he summarized his six years there in this way: ¨when I arrived there were 28,000 workers in MCC and when I left there were 70,000.¨ He also noted that only about 38,000 of those workers were employee-owners (now days the figure is somewhat higher) and that the rest (that is, non-worker owners) worked abroad or largely at Eroski. He rhetorically raised the question that if the coops were creating non-cooperative jobs at such a large rate would they soon no longer be coops? His answer was that expanding non-coop employment allowed for the creation of more worker owners, made coops more competitive and that during his time as the head of MCC the created on average 2,000 co-operators per year more then during any other period. In addition non-owner workers in MCC companies tend to be treated and paid better then workers in other firms in the same industry.

Meeting Cancelos was even more exciting then meeting Jose María Ormaetxea. He truly embodied the image of an entrepreneur dedicated to cooperativism but open to non-traditional means of growing cooperative firms.

Yesterday was the first day of class for my Masters program. I was excited to finally get started. We began with an overview of the class and the structure of the program. It is basically the following: there is an initial portion that is one semester long that all students take part in. Then each student picks area of concentration either, General Management, Finance, Marketing, Supply Chain Management or Management of Athletic organizations and possibly (if enough people participate) a cooperative management one. Not sure which I wil do yet.

There are 25 five students including me, 6 of us are from other countries one Chilean, a Venezuelan woman and a Columbian and two Mexicans who haven’t arrived yet because of visa problems. The rest are from Spain. They are mostly from all over the Basque region and a few from beyond. The group seems to be a mix of those who are currently working and young people who have never worked. We also got our first assignment, which is to do a business plan in a group. I have three other people in my group, the live about an hour away in either San Sebastian and Bilbao, which should make group work interesting.

The highlight was when José Maria Ormaetxea, one of the five founders of the first Mondragón Coop, ULGOR (which later became Fagor), as well as the founder of Caja Laboral and the first director (the coop bank) and former President of MCC gave a speech about the cooperative experience to us. He 80 years old but still quite vibrant and seems to have an exceedingly clear and sharp memory of the early days of the coops. He outlined the growth of the Coops from a small group of student who were around the Priest Arizmendiarrieta to its current state.
He divided the MCC's history into three phases: 1) the Christian period from the founding of the first coop in1955 until 1973. The period when a small group of people who surrounded Arizmendi spread the coops motivated largely by christian values and because of the Dictatorship in the context often of Christian meetings etc.

2) The second phase he identified was the Romantic phase from 1973 until 1990. This period is characterized by a widening of the cooperatives to individuals who are motivated by idealistic, but now religious beliefs and is also a period of tremendous growth. When many new coops are started, when Lagun-Aro the social service coop was setup and the first research center was set up. The expansion of inter-cooperative support.

3) The third period Ormaetxea identifies is the period of Pragmatism from 1990 to the present. This is the period of increased competition, European integration and huge expansion. It is also the period when Coops begin to incorporate large amounts of non-owner workrs and operate subsidiaries internationally. The Mondragón Cooperative Corporation (although formed in 1987) takes on the leading role in defining the course of the coops.

Ormaetxea also made the point that because of globalization and increased competition that most likely in 50 years there would be no coops. That is, there would be companies with a small token amount of cooperative leadership, but in order to remain flexible and competitive they would not be able to incorporate new workers as owners and would have to do much of their work abroad. When ask about the prospect of turning subsidiaries in other countries into coops, he replied in no uncertain terms that it was impossible and would never, ever happen! Specifically, the company Fagor has a plant in Poland with 1,000 workers who seem uninterested in becoming a coop. However, Ormaetxea, a man who helped lead the fashioning of the world’s premier industrial cooperatives from an impoverished backwater, during the repressive reign of Franco believes spreading coops or even growing them at all is impossible.

He seemed to me like a man who was prone to overstatement and liked to make an impression. He is quite entertaining and it was impressive to meet him in the flesh. I will let you know how the class goes in the next few days.