This will be my last post about Making Mondragon, a book I have just read about the Mondragon cooperative complex (prior posts: I, II). I read the book hoping to clear up some confusions I had about how cooperative businesses could successfully handle certain problems. Here I address how Mondragon deals with cooperatives when they fail.
The short of it, according to Whyte and Whyte, is that Mondragon just does not let cooperatives fail. The book is a couple of decades old, but at the time at least, Mondragon had almost none of its cooperatives actually fail. The authors did not go over what happened to the one or two that had actually failed.
So how does it manage to not let cooperatives fail? The banking cooperative, Caja Laboral Popular, keeps a close eye on all of the cooperatives in the complex. As I mentioned in the last post, Caja contracts with every Mondragon cooperative. Through this contract, cooperatives receive banking and consulting services, and Caja imposes requirements that the cooperative adhere to a specific governance structure, which is what makes all of the cooperatives behave like cooperatives.
As part of their arrangements with Caja, the cooperatives provide ongoing data about their performance. The analysts at Caja use the data for a number of things, one of which is to determine whether a member cooperative is having trouble. By analyzing trends and other things, the Caja analysts are able to sniff out pending problems at a cooperative, often before the management of the cooperatives know there is a problem.
When Caja sees a cooperative in or headed towards trouble, it intervenes and tries to determine how to fix it. Using its assessment of the situation, it then works out a restructuring plan for the troubled cooperative. It pitches that plan to the cooperative in question and gets it to sign on. In return for signing on, Caja extends the cooperative credit and services to help it get through the restructuring.
If the restructuring involves reducing the labor force, then Mondragon’s general unemployment policies and system kicks in. For the most part, that system involves trying to place the redundant workers into other cooperatives. If that’s not possible, then a system of unemployment benefits kick in. Even if it is possible to place the workers in other cooperatives, those benefits might kick in if the new jobs do not pay as much as the jobs the redundant workers were laid off from. Caja does not necessarily have anything to do with this part, but it might — as part of its restructuring plan — help the troubled cooperative fund its part of the unemployment benefits for the laid off workers.
So, Mondragon basically does everything it can to prevent total cooperative failures, and has been fairly successful at doing so. The cooperative bank that plays such a substantial role in Mondragon in general also plays the leading role in preventing firm failures. It keeps very close track of member cooperatives and acts when it looks like one is having problems. Because of its unique position as a creditor, it also has the financial ability to fund the kinds of changes it thinks are necessary to bring failing cooperatives back into profitability.