Monday, 15 October 2018

Humanity at work

Parliament’s Portfolio Committee on Small Business Development recently returned from a five day study tour to the Basque region of Spain as well as Madrid. Our purpose was to visit the Mondragon Corporation, Spain’s leading exponent of cooperatives as an organising principle of business, learn from its successes and failures and understand the role government plays in the cooperatives sector.

The development of coops has long been on the South African government’s agenda, but its track record is lamentable. A 2009 DTI study revealed that 88% of coops formed to date had failed. Since responsibility for coops was transferred to the Department of Small Business Development in 2014 their performance has not improved while hundreds of millions of rands have been pumped into the sector to try to kick start it. It remains moribund and lacking direction.

The Mondragon Corporation has its roots in a technical college set up in 1943 in the town of that name by a Catholic priest, Jose Maia Arizmendiarrieta. He came equipped with an extraordinary mixture of idealism and pragmatic talent. His purpose was to instil a set of values in the community based on sharing and parcipatory humanism, while training the youth in technical skills. It was all about “socialising knowledge in order to democratise power.”

In 1956 five graduates of the college bought a small kerosene stove business and converted it into a coop, which was followed in 1957 by the formation of a consumer coop and later by coops in the finance, retail, insurance, engineering and consumer durables sectors.

60 years after its formation, Mondragon Corporation encompasses over 266 businesses and is one of Spain’s largest industrial groups with turnover of 12 billion Euro (R200 billion) and 75,000 employees. Its philosophy is summed up by its slogan “Humanity at Work”, and an approach to business in which “the generation of wealth has a single goal: the wellbeing of people and the community, achieved through competitive business and inter-cooperative solidarity.”

As one of the Mondragon executives put it, the essence of Mondragon is not the alleviation of poverty but the creation and distribution of wealth in a fairer and more equal way.

Mondragon and its home region have rooted their success in unswerving policy and strategy consistency with the cooperation of government, business and civil society over successive decades. Meetings with the Basque Presidency, the Ministry of Economic Development and the Trade Investment Agency gave us a very clear picture of a common vision and admiration for Mondragon’s unique characteristics.

Their laser-like focus on innovation/technology, internationalisation and human capital development has paid dividends. Mondragon is the dominant business and employer in the Basque region which boasts Spain’s highest GDP per capita at 37,000 Euro and ranks top in Europe’s Human Development Index and 7th globally.

This is all the more remarkable when one considers that the Basque economy was on its knees in the 1980s, prompting the Basque government in 1991 to invite US business strategy guru Michael Porter to advise them on a new direction. The result was a sectoral cluster focus with an emphasis on manufacturing, innovation and exports. Mondragon exemplifies its success in implementing this strategy.

To see how they did it, the committee visited the Mondragon headquarters and three of its coops, none of which conformed to our pre-conception of what a coop is.

The Ulma Group makes a wide variety of capital goods including fork lift trucks, conveyor components, handling systems and piping. Last year it had sales of 728 Euro (around R12 billion), 70% produced for export or made in its international subsidiaries, and employs 4,685 people.

Fagor Arrasate, which makes die pressing equipment and machine tools for the home appliances, aerospace, automotive and engineering sectors, employs 868 people and had sales of 248 million Euro in 2017. It is tiny compared to its competitors but by South African standards rates as a medium to large business.

Mondragon University has over 5 500 registered students and four faculties – engineering, business studies, humanities and education sciences, and gastronomic sciences. Each faculty operates as a coop and together they offer 15 undergraduate, 13 masters and 3 doctoral programmes. 75% of its income derives from student fees, 25% from the private sector in the form of donations and research partnerships. The vice-rector referred to it as a university of knowledge transfer.

As we toured these premises we were impressed by their commitment to high-tech, skills development, innovation and an export-focus. It was as if everyone we spoke to was reading off the same script. This is hard-wired into their system and not forced onto them by some outside entity, while government plays a supportive not a directing nor funding role.

It has not always been plain sailing. In 2013 one of its biggest coops, the Fagor consumer goods business, filed for bankruptcy after a disastrous expansion programme led to debts its sister coops were not willing to cover. Its 1 900 coop member employees were absorbed into other coops in the group, while 3 500 wage earning workers lost their jobs. The business was eventually bought by Cata, a Spanish competitor, which made no commitment to maintain its cooperative structure.

One of the most remarkable features of Mondragon is its remuneration policy – the highest paid executive earns no more than six times the lowest paid coop member. This is made possible by its highly egalitarian culture which is hard to replicate outside its home territory.

What can we learn from Mondragon and the Basque country’s achievements? First, at the coop level, success does not come from grants or handouts but from a rare combination of social entrepreneurship, committed leadership, cooperation and competitiveness. At the regional level, success boils down to defining and relentlessly pursuing competitive advantage based on an educated and skilled workforce, and a global perspective.

While we cannot simply transplant these practices to South Africa, we must be prepared to examine how the principles they are based on can positively impact our own policy-making process and culture. This is essential if we are to achieve both a sustainable coops sector and prosperity in the wider economy.

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