Mondragon Corporation

Based on Wikipedia: Mondragon Corporation

In most companies, the CEO earns hundreds of times more than the lowest-paid worker. At Mondragon, the ratio is capped at nine to one. More typically, it's five to one.

This isn't some tiny commune or idealistic startup. Mondragon is a federation of over 250 companies employing more than 70,000 people. It manufactures everything from refrigerators to elevators to bicycles. It runs one of Spain's largest supermarket chains. It operates banks, insurance companies, and a university. And the workers own it all.

A Priest in a Devastated Town

The story begins in 1941, when a young Catholic priest named José María Arizmendiarrieta arrived in the Basque town of Mondragón. The town had seven thousand residents and hadn't recovered from the Spanish Civil War. Poverty, hunger, and the wounds of recent conflict defined daily life.

Arizmendiarrieta didn't start by building cooperatives. He started by building a school.

In 1943, he established a technical college to train young people in engineering and practical skills. For over a decade, he taught them not just how to build machines, but how to think about work, dignity, and solidarity. His philosophy drew on Catholic social teaching—the idea that labor has inherent dignity, that workers deserve a voice in their workplace, that economic systems should serve human flourishing rather than the other way around.

Only after years of education did he move to action. In 1955, he selected five of his students to start a company. They called it Talleres Ulgor, taking the name from an acronym of their surnames: Usatorre, Larrañaga, Gorroñogoitia, Ormaechea, and Ortubay. Their first product was paraffin heaters—simple devices for warming Spanish homes. The company would eventually become Fagor Electrodomésticos, one of Spain's major appliance manufacturers.

What Makes a Cooperative Different

To understand why Mondragon matters, you need to understand what a worker cooperative actually is.

In a traditional corporation, shareholders own the company. They elect a board of directors, who hire executives, who manage workers. The workers have no ownership stake. They're simply selling their labor for wages.

In a worker cooperative, the workers are the shareholders. They own the company collectively. They elect their managers democratically. Profits don't flow to outside investors—they go back to the workers who created them.

This isn't just an abstract difference. It changes everything about how decisions get made.

When a traditional company faces hard times, executives often protect shareholder returns by laying off workers. When a cooperative faces hard times, the worker-owners have to decide together what sacrifices to make. They might cut their own pay. They might reduce hours across the board. They might invest in retraining. But they're not going to vote themselves out of their jobs if there's any alternative.

The Architecture of Solidarity

Arizmendiarrieta understood that isolated cooperatives are fragile. A single cooperative competing against well-capitalized traditional firms faces an uphill battle. So as new cooperatives formed around Mondragón in the late 1950s and 1960s, he encouraged them to build shared institutions.

In 1959, they created Caja Laboral, a cooperative bank. This was crucial. Traditional banks are often reluctant to lend to cooperatives—the ownership structure is unfamiliar, the collateral is unusual, the decision-making process seems cumbersome. A cooperative bank, owned by its depositors and by the cooperatives it serves, has different incentives. It exists to support the cooperative ecosystem, not to maximize returns for outside shareholders.

In 1966, they established Lagun Aro, a social welfare body. The name combines Basque words meaning roughly "friend" and "time." It provides retirement benefits, disability coverage, and widowhood support beyond what the Spanish government offers. The fund held over five and a half billion euros in assets by 2014.

Think about what this means. The cooperatives weren't just sharing ideology. They were sharing money, sharing risk, sharing the infrastructure of economic life. When one cooperative struggled, others could help. When workers needed training, there were cooperative schools to provide it. When entrepreneurs wanted to start new cooperatives, there was a bank that understood their model and would fund them.

The Ten Principles

Mondragon cooperatives operate according to ten basic principles, which align with international standards maintained by the International Co-operative Alliance. These aren't just slogans—they're encoded in the rules that govern how the cooperatives operate.

Open Admission means anyone who accepts the cooperative principles and is professionally qualified can join as a worker-owner.

Democratic Organization means one person, one vote. It doesn't matter how long you've worked there or how senior your position—your vote counts the same as everyone else's.

Sovereignty of Labor means that labor, not capital, has primacy. The workers aren't serving the interests of investors. The enterprise exists to serve the workers.

Instrumental and Subordinate Nature of Capital is the flip side. Capital—money, investment—is a tool, not a master. It deserves fair compensation, but it doesn't get to call the shots.

Participatory Management means workers are actively involved in running the business, not just voting once a year and going back to their stations.

Payment Solidarity is where those wage ratios come in. Compensation should be fair and relatively equal. No one should get rich while their colleagues struggle.

Inter-cooperation means cooperatives should work together, not compete against each other. The whole ecosystem is stronger when its members support one another.

Social Transformation means the cooperatives aim to improve society, not just make money for their members.

Universality means the model should spread. These aren't jealously guarded secrets—they're principles meant to be shared with anyone who wants to try them.

Education underpins everything. Remember, Arizmendiarrieta started with a school. Training and continuous learning remain central to the Mondragon philosophy.

The Wage Question

Let's return to those wage ratios, because they're one of the most striking features of the Mondragon system.

In different cooperatives, the ratio between the highest-paid position (typically the general manager) and the lowest-paid position ranges from three to one up to nine to one. The average is about five to one.

To put this in perspective: in 2023, the average CEO of a large American company earned about 272 times as much as the median worker in their firm. The gap has grown dramatically since the 1960s, when the ratio was closer to 20 to one.

Mondragon's approach creates some challenges. As of 1991, Mondragon managers earned about 30 percent less than comparable positions at traditional firms in the region. This can make it difficult to recruit experienced executives from the outside. Why take a pay cut to work at a cooperative when you could earn more elsewhere?

But the system has benefits too. Workers at the lower end of the pay scale earn about 13 percent more than comparable positions at local businesses. And the flat pay structure creates a different kind of workplace culture. Managers aren't a separate caste living radically different lives. They're colleagues who happen to have different responsibilities.

The wage ratios aren't imposed from above. Each cooperative decides its own ratio through democratic vote. If the workers want to raise the cap to attract a particular manager, they can. If they want to keep it low, that's their choice too.

Growing Into a Corporation

Throughout the 1960s and 1970s, the cooperative movement around Mondragón grew steadily. New cooperatives formed. Local groups organized. In 1969, ten small consumer cooperatives merged to create Eroski, which would eventually become one of Spain's largest retail chains.

In 1974, they founded Ikerlan, a research center. The name means "research work" in Basque. Having shared research capacity meant individual cooperatives didn't have to fund basic R&D on their own.

As Spain prepared to join the European Economic Community in 1986, the cooperatives faced a new challenge. They had thrived in a relatively protected Spanish market. European integration would expose them to fiercer competition from larger, more established firms.

In 1984, they decided to formalize their collaboration. The Mondragon Cooperative Group was born—a federation that could coordinate strategy, pool resources, and compete on a larger stage.

They created Otalora, a training center for managers. They standardized certain practices while preserving cooperative autonomy. By the end of 1990, the group employed 23,130 workers.

Going Global

Globalization posed a dilemma. Mondragon's manufacturers were competing against companies that built factories in countries with lower wages and fewer regulations. The cooperatives could try to compete on quality and innovation alone, or they could follow their customers and competitors abroad.

They chose to expand internationally. In 1990, they opened their first foreign plant—a Copreci facility in Mexico. Copreci makes components for gas appliances: valves, thermostats, burners. Having a Mexican plant let them supply customers in North America more efficiently.

The expansion accelerated rapidly. By the end of 2008, Mondragon operated 73 production plants in foreign countries. By the end of 2013, that number had risen to 122, employing over 11,000 people.

These plants sprawled across the globe: China (15), France (17), Poland (8), Czech Republic (7), Mexico (8), Brazil (5), Germany (4), Italy (4), United Kingdom (3), Romania (3), United States (4), Turkey (2), Portugal (2), Slovakia (2), India (5), Thailand (1), and Morocco (1). The corporate industrial park in Kunshan, near Shanghai, housed seven subsidiaries alone.

By 2013, international sales accounted for over 71 percent of Mondragon's industrial turnover. The cooperatives had become genuinely multinational enterprises.

The Worker Question Abroad

Here's an uncomfortable tension in the Mondragon story.

Workers in the Basque cooperatives are owner-members. They vote on major decisions. They share in profits. They elect their managers.

Workers in the foreign subsidiaries are typically employees, not owner-members. The plants abroad operate more like conventional companies, with the Basque cooperatives as their corporate parents.

Mondragon has acknowledged this tension. They've experimented with extending cooperative principles to foreign workers in various ways. But replicating the full Mondragon model—with its decades of culture-building, its network of supporting institutions, its particular legal frameworks—isn't straightforward.

In 2009, Mondragon announced a partnership with the United Steelworkers union to create worker cooperatives in the United States. In 2012, they released a detailed model for "union co-ops" together with the USW and the Ohio Employee Ownership Center. The idea was to combine the cooperative ownership structure with the collective bargaining traditions of American unions.

This experiment highlighted how context-dependent the Mondragon model is. You can't just transplant a cooperative into a different legal system, different culture, different economic ecosystem and expect it to flourish automatically.

The Fagor Crisis

For decades, Mondragon seemed to prove that cooperatives could compete successfully in the modern economy. Then came 2013.

Fagor Electrodomésticos—the original cooperative, the company started by those five students of Arizmendiarrieta—filed for bankruptcy on October 16, 2013. It owed 1.1 billion euros. 5,600 jobs were at risk.

The appliance industry had been hit hard by the 2008 financial crisis and the collapse of Spain's housing market. Fewer new homes meant fewer new kitchens, fewer new appliances. Fagor had also issued bonds between 2002 and 2007 that were marketed as safe deposits but which courts later classified as riskier debt instruments. When the financial crisis hit and yields fell, bondholders sued.

This was the largest business failure in Basque history. It was also a profound test of the cooperative system.

Mondragon didn't let Fagor's workers simply lose their jobs. The cooperative network absorbed many of them, offering positions at other companies in the federation. Retraining programs helped workers transition to new roles. The social safety net of Lagun Aro provided support during the transition.

This is what "inter-cooperation" and "solidarity" mean in practice. When a member of the federation failed, the others didn't just watch it sink—they rescued as many of its people as they could.

In July 2014, a Catalonian company called Cata bought what remained of Fagor for 42.5 million euros. They pledged to create 705 jobs and continue the brand names. The cooperative was gone, but the concept of cooperative solidarity had proven itself.

Departures

Not every cooperative has stayed in the federation.

In 2008, the worker-owners of Ampo (metal casting) and Irizar (luxury coaches) voted to leave Mondragon. They wanted more independence—fewer obligations to the collective, more control over their own strategies.

A larger departure came in 2022, when ULMA Group (scaffolding and construction systems) and Orona (elevators) voted to exit. These were successful cooperatives, profitable enterprises. Their departure reduced the federation's workforce by about 13 percent and its sales by 15 percent.

Under Mondragon's rules, member cooperatives contribute 10 percent of their profits to a common fund that supports struggling cooperatives. ULMA and Orona no longer wanted to make those contributions. They'll continue to use Lagun Aro for worker insurance and collaborate with Mondragon University, but they're no longer part of the solidarity fund.

These departures reveal a tension at the heart of any cooperative federation. The most successful members may feel they're subsidizing the less successful ones. They might earn more outside the system than within it. Solidarity requires ongoing commitment, and that commitment can fray.

What Mondragon Makes

The scope of Mondragon's industrial activity is remarkable.

In machine tools, they're Spain's leading manufacturer. The Danobat Group makes machining equipment. The Fagor Arrasate Group makes machines for forming sheet metal. These are serious industrial goods—the tools that make other tools.

In automotive components, Mondragon operates as an integrated supplier to major car manufacturers. They design, develop, and produce brakes, axles, suspension systems, transmissions, engine components, aluminum wheel rims, and both interior and exterior parts. When you're driving a European car, there's a reasonable chance some of its components came from Mondragon cooperatives.

In construction, they build everything from large metallic structures to prefabricated concrete. The ULMA Group (before its departure) provided formwork and scaffolding systems. The Orona Group (also now independent) made elevators.

They manufacture bicycles under the Orbea brand—a name familiar to cycling enthusiasts worldwide. They make exercise equipment, camping gear, garden tools, and beach supplies.

They run Eroski, a retail giant with over 2,000 stores including hypermarkets, supermarkets, travel agencies, petrol stations, sporting goods stores, and perfume shops. At its peak, Eroski had locations throughout Spain, southern France, and Andorra.

And threading through all of this is the "knowledge" sector that distinguishes Mondragon from other business groups: Mondragon University, research centers like Ikerlan, training facilities, language schools, and consulting services.

The Bigger Picture

Mondragon isn't a utopia. The Fagor bankruptcy showed that cooperatives can fail. The departures of successful members showed that solidarity has limits. The tension between Basque worker-owners and foreign employees shows that cooperative principles don't automatically spread.

But Mondragon demonstrates something important: that large-scale cooperative enterprise is possible in the modern economy. You can run factories, banks, supermarkets, and universities on cooperative principles. You can compete internationally. You can maintain reasonable wages at the top while paying well at the bottom. You can weather economic crises by sharing sacrifice rather than concentrating it on the most vulnerable workers.

In 2024, Mondragon employed over 70,000 people—about 30,660 in the Basque Country, around 29,340 in the rest of Spain, and approximately 10,000 abroad. It remains the seventh-largest Spanish company by asset turnover and the largest business group in the Basque region.

Father Arizmendiarrieta died in 1976, having seen his five students' small heater factory grow into an industrial movement. The town of Mondragón, which had been devastated by civil war when he arrived, became the center of an economic experiment watched by scholars and activists around the world.

The experiment continues. Its successes and failures both have something to teach about how work might be organized differently—not through revolution or government decree, but through patient institution-building, one cooperative at a time.