In this Spanish town, capitalism actually works for the workers

At first glance, this could be any industrial factory. Workers wearing protective gloves assemble control panels and heating plates amid the relentless whirring of machinery. Giant yellow robot arms swing back and forth, lining trays with tiny metal parts.

But there is a reason that each year thousands of visitors from every continent come to this mountainous Basque landscape to study factories like this one. This is the home of the Mondragon Corp., the world’s largest federation of worker-owned cooperatives. 

Copreci, which makes parts for home appliances, is one of 81 Mondragon cooperatives, ranging from manufacturing to finance and retail. By the end of the day, this floor alone will churn out 30,000 gas valves, destined for stoves worldwide.

Yet it is also churning out a radically different vision of capitalism.

For young people especially, capitalism brings to mind wealth inequality, cost-of-living crises, and environmental collapse. More than half the respondents of the global Edelman Trust Barometer survey from 2022 said that capitalism does more harm than good in the world.

The Mondragon Corp. sees itself as a third way, not as an alternative to capitalism, but as an alternative way of doing capitalism – one that can build trust, not widen divisions.

“The purpose of what we’re doing here is not the machinery or the production process,” says Amaia Salbide, president of Copreci, on a visit to the factory floor. “Those are tools to reach a higher goal of social transformation.” 

In a traditional capitalist system, decision-making power and wealth are concentrated in the hands of a few top executives and shareholders. In contrast, Mondragon’s nearly 70,000 members, ranging from floor workers to top executives, are co-owners of their businesses. They have voting power at general assemblies, where they weigh in on company strategy and policy. The income disparity between the highest- and lowest-paid employees in Mondragon’s cooperatives is capped at a ratio of 6-to-1, compared with a typical ratio of 344-to-1 in the United States. (It’s typically 77-to-1 in Spain.)

As the saying around here goes, Mondragon does not create rich people, but rich societies. That means prioritizing quality of life for the employees who live and work in the towns dotting these forested hills rather than maximizing profit for investors.

“I think of it as a sort of attractive form of capitalism,” says Nick Romeo, author of “The Alternative: How To Build a Just Economy.” “One that works more effectively for more people but retains some of the benefits of markets and efficiency and competition.”

No one is rich, no one is poor

Hugo Montalvo knows he could make more money as a sales manager at a regular multinational company. But he wouldn’t trade his middle-class status or the small town where he is raising his two children.

At the end of a day’s work, Mr. Montalvo often finds those on the assembly line picking up their children from the same schools as top managers and gathering at the same tables at local bars. The base pay for a Mondragon worker is on average 40% higher than Spain’s minimum wage.

“Here, no one is rich,” says Mr. Montalvo, who works for Ecenarro, a Mondragon cooperative in the automotive sector based in Bergara, a short drive through the valley from the town of Mondragón. “But no one is poor either. We’re all in that middle range, earning decent salaries.”

Solidarity permeates the business model. To become a member of a cooperative, a worker invests €17,000 ($18,400), normally bit by bit over time. As for company profit, 60% is reinvested in the business, 30% goes to employees as capital, and 10% is for the local community. At the end of each year, Mondragon reviews each cooperative’s earnings, and companies in better financial positions contribute to those that are struggling.

“Just as we’ve received in the past, now it’s our turn to give,” says Mr. Montalvo.

Back in 2013, he was working for Fagor Electrodoméstico, a Mondragon cooperative that at the time was Spain’s leading home appliance company. When the company went bankrupt in the aftermath of the financial crisis, his job and initial investment disappeared.

Within two weeks, he was transferred to Ecenarro, and Mondragon covered his membership fee. Of the almost 2,000 people who lost their jobs at Fagor, 95% were relocated within the Mondragon network. During the pandemic, workers came to collective agreements to avoid job losses, including salary reductions.

“The success of the economy can be seen broadly speaking in terms of people’s own experiences of prosperity and economic security,” says Martin Wolf, author of “The Crisis of Democratic Capitalism.” “Is it rising? Do they expect it to rise for their children? ... Do they feel they are treated fairly by the people in charge?”

When the answers are yes, he says, people are much more likely to trust the economic system. Workers here say that without first building trust, the Mondragon experiment would not have survived.

Mondragon’s economic tightrope

Mondragon traces its roots to the aftermath of Spain’s civil war. In 1941, a young Basque priest named José María Arizmendiarrieta arrived in the town of Arrasate-Mondragón. Amid deep social divisions and a devastated economy, he established a technical school and organized study circles to promote cooperativism and solidarity among local youth. With his help, 11 students enrolled in long-distance engineering courses.

In 1955, five of these students formed the now-defunct Fagor Electrodoméstico, the first Mondragon cooperative. Over time, Mondragon expanded its businesses, which today range from a credit cooperative to a well-known supermarket chain. Mondragon University, also a cooperative, enrolls thousands of students.

On a recent Sunday evening, children played freely in Mondragón’s historic square and winding alleys. The bustling town stands in stark contrast to other villages across the north of Spain, once thriving industrial hubs. Between 2008 and 2015, The Basque Country’s industrial sector lost 64,000 jobs as companies moved their manufacturing abroad and others shut down.

“The cooperative is a creator of wellness, so it has to exist for decades and decades,” says Ander Etxeberria, who leads Mondragon’s cooperative outreach program.

Yet Mondragon, too, walks the tightrope between its people-oriented model and the pressures of global competition. When a group of cooperative workers from San Francisco’s Arizmendi Bakery – named after the Basque priest – arrived at Mondragon wearing T-shirts that read “Fire the bosses,” Mr. Etxeberria recalls holding back a smile. For the sake of business efficiency, most operational decisions are made by managers in a standard hierarchical structure.

Critics note that Mondragon’s international subsidiaries in countries from Mexico to China to Turkey are not cooperatives, despite early efforts to export the model. Even in Spain, not all workers at Mondragon are cooperative members.

Mr. Etxeberria acknowledges that Mondragon is not immune to contradictions, adding that the cooperatives tend to be more pragmatic than idealistic. That can cause friction.

“When you come in from the bottom, you barely have any power at all,” says an engineer at the technology research cooperative Ikerlan who asked not to share his name, sitting outside near the church where Arizmendiarrieta is buried. He says Mondragon’s business model is going to have to evolve as global competition grows even tighter. Still, he says, one thing is for sure.

“This town has life and lungs thanks to the initiative.”