By: Mohini Malhotra, Senior Advisor

A global pandemic few of us had imagined could happen in our lifetime, or ever, has wiped many notions of `normal.’ Stark inequities have been made starker, and around the world, unemployment has gone up, in most countries with little to no safety nets in place.  This blog was prompted by a NYT article on the Spanish Mondragon Corporation that Isabel Guerrero, co-founder of IMAGO Grassroots Global shared with me. The article features how a cooperative organization, Mondragon Corporation, an employer of over 70,000 people and one of Spain’s largest, with annual revenues of more than 12 billion euros ($14.5 billion) kept its workers across 96 cooperatives largely employed during the pandemic and prior crises. It includes one of the country’s largest grocery chains, a credit union, producers of sliding doors, car components, and medical devices that are exported globally. The 96 cooperatives of the Mondragón Corporation are dually committed to generating profits and to protecting the employment and paychecks of workers.

The article provoked many of the same questions that Imago works on with grassroots organizations globally, such as SEWA, the world’s largest trade union of women in the informal sector, operating across India with 1.8 million grassroots women as members in a country where 94% of the population is employed in the informal sector, and where 90% of women earn their income. SEWA members have formed cooperatives and collective businesses that they own, manage, and root in SEWA’s core values of gaining informal women workers’ rights, livelihoods, financial independence, education, health and social security, and voice and dignity.  These social businesses include artisans who weave and embroider for fashion houses in far away capitals, ayurvedic medicine producers, agricultural producers and processors, caterers, elderly or child-care providers, among others.

The questions that a cooperative at the scale of Mondragon or even a small one organized by informal women artisans are – Where do profits and social ambitions intersect? Can you align values of livable wages and insurance and protection for your workers with profits and sustainability, especially in a cut-throat market where you compete with competitors who do not practice these values? Can worker cooperatives at the grassroots be profitable?

The cooperative movement in Mondragon, Spain, traces its origins to a priest, José M. Arizmendiarrieta, who, after the Spanish Civil War in the early 1940s, sowed principled of collective action as a way for economic improvement – workers should be owners who determine wages, working conditions, and profit share distribution.

As the pandemic ravaged Spain in 2020, many Mondragón cooperatives had to shut down factories as orders got cancelled and production plunged to 25% of capacity. The cooperatives avoided layoffs by temporarily trimming wages by 5%, continuing to pay workers stuck at home in exchange for the promise that they would make up some of their hours when better days returned. The same approach of wage cuts and advance payments on future hours kept employment largely intact while joblessness reached beyond 26% during the global financial crisis of 2008.  “We have the philosophy of not firing people” said Anton Tomasena, one of the cooperative’s chief executive.

In Germany the notion of Sozialpartnerschaft, (social partnership) exists between firms and trade unions. By law, the supervisory board of any company with more than 2,000 employees must be made up of equal numbers of shareholder and labor representatives and unions negotiate sector-wide contracts with business associations across employers in an industry, such as metal processing or grocery stores. Non-unionized businesses often follow the wage structure agreed to in the contract for their industry. (In contrast, in the US unions negotiate with each employer). Many of Germany’s biggest corporations have brokered deals with trade unions to allow them to reduce staff through various instruments in exchange for agreements to ban forced layoffs.  Companies who announced plans to slash tens of thousands of jobs – Volkswagen, Continental AG, Robert Bosch GmbH, Bayer, Siemens AG, and business software maker SAP – have and continue to use early retirement, severance pay, not replacing retirees, and similar to Mondragon, working-time accounts, where workers bank overtime pay during good economic times and tap those accounts when their hours are cut during economic downturns. In 2009, as Germany’s GDP collapsed in the financial crisis, many companies sent employees home but kept them on the payroll (helped by government wage subsidies), and called them back when demand rebounded a year later, saving them lengthy and costly firing, hiring, and training processes. Despite a 5-point drop in GDP, unemployment rose less than a percentage point, while in the U.S., it rose to a post-recession peak of 10% in October 2009 from a prerecession low of 4.4% in the spring of 2007.  “There is a social and cultural view in Germany that is different than the U.S., but also a system of governance where the interests of the employee are more in the foreground,” said Craig Smith, chair in ethics and social responsibility at the Paris-based business school Insead.   

There is hope that social consciousness is contagious. In 2019, 181 CEO’s the Business Roundtable, a leading group of chief executives in the United States pledged to compensate employees fairly and provide “important benefits,” as well as training and education in a mission statement. While chief executives of the largest 350 companies are paid about 320 times as much as the typical worker in the US, according to the 2020 compensation report by the Economic Policy Institute, Mondragon executives’ salaries are capped at six times the lowest wage.

Which of these lessons from wealthy countries with deeper government and private safety nets are relevant for small collective enterprises run by women at the grassroots, the typical entity that Imago works with?  The literature and lessons on cooperatives and collective action for women-run and owned enterprises are captured in the paper by Guerrero, Iyer, and Walton (linked below).  There are few such enterprises to begin with – less than 2% of cooperatives in India are run and owned by women, hence precisely the space where organizations such as SEWA concentrate. The study reports that “collective organizations have the potential to become the best organizational form for women working in group settings, such as self-help groups and organizations like SEWA because the members’ dignity and well-being is central to their purpose.”  The study also finds that contrary to popular perception of worker cooperatives as bohemian outputs, they can be as productive and efficient as well-managed capitalist firms, or the reverse, just as any ill-managed capitalist (or any type) firm can be unproductive and inefficient. Like any viable entity, the successful ones invest in business acumen, skills, staff, access capital, and know their markets to stay top of their game, while being inclusive and engaging in collective decision-making processes.

The coronavirus crisis has and continues to ravage lives and livelihoods and push healthcare to the brink around the globe, but particularly in the developing world, where there are no safety nets or deep pockets to turn to. The most affected are the most vulnerable in the economic pyramid. Collective action may be the only real safety net, particularly for women. And what they do have is deep pockets of trust, resilience, and shared purpose.

Sources: