"Nada diferencia a los hombres y a los pueblos como su respectiva actitud en orden a las circunstancias en que viven. Los que optan por hacer historia y cambiar por sí mismos el curso de los acontecimientos llevan ventaja sobre quienes deciden esperar pasivamente los resultados del cambio"

"Nothing separates men and the people as their respective attitudes toward the circumstances they live in. Those who, for themselves, choose to make history and change the course of events have an advantage over those who passively await the results of change"

-Fr.José María Arizmendiarrieta
Founder of Mondragón

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Mondragón: Past Performance and Future Potential

by Race Mathews

Exposure Draft of a Paper in Honour of the Late Professor William Foote Whyte, to be Presented at the Kent State University Capital Ownership Group Conference, Washington, October, 2002

ABSTRACT

This paper is about the great complex of manufacturing, financial, retail, civil engineering, service and support co-operatives - now the Mondragon Co-operative Corporation (MCC) - at Mondragon in the Basque region of Spain. The intellectual origins and underpinnings, history and current status of the co-operatives are reviewed, future opportunities and challenges are identified, and conclusions are drawn about how possible responses can be made to happen, and what are the lessons for other countries such as Australia and the United States. There is seen to be a pressing need for an International Mondragon Studies Association, to facilitate an on-going, free and open exchange of ideas and information about Mondragon, both among Mondragon scholars and between them and the co-operatives and their members. The aim is seen to be to make Mondragon studies a two-way street – to as much give back to Mondragon as gain from it.

THE MONDRAGON CO-OPERATIVES
The great complex of industrial, retail, financial, civil engineering, service and support co-operatives based on Mondragon in the Basque region of Spain – now the Mondragon Co-operative Corporation (MCC) - provides an object lesson in the uses of employee ownership to create jobs, drive regional economic development, facilitate entrepreneurship and empower workers to assume control of their workplaces and the wealth created by their labour. It demonstrates conclusively the feasibility of labour hiring capital instead of capital labour. It demonstrates how social and economic objectives within firms and between them and the wider community can be harmonised with one another. These are all good reasons why the rest of the world should get to know all it can about Mondragon. They are also good reasons for providing feedback on what is learned from Mondragon – for ensuring that as great benefits are returned to the co-operatives as are received from them.

The essentials of the Mondragon story are simple. From a standing start in 1956, the Mondragon co-operatives have grown into what is now the largest business group in the Basque region of Spain, the seventh largest business group in Spain and a major competitor in European and global marketplaces. What began forty-six years ago as a handful of workers in a disused factory, using hand tools and sheet metal to make oil-fired home heaters and cookers, has become a massive conglomerate of some150 autonomous but intricately inter-related firms.

All told, the co-operatives employ roughly 3 percent of the Basque region’s 1,000,000 workers. While the region has lost 150,000 jobs since 1975, and unemployment even on official figures fluctuates between 15 and 20 per cent, employment in the co-operatives has increased since over the last five years, from 34,397 to 60,000, and further increases are anticipated.

Annual sales for the manufacturing co-operatives alone total more than $US3 billion, and sales for the retail co-operatives are in excess of $US3.5 billion. The MCC report for 2000 notes that sales of manufactured goods were up on 1999 by 18 per cent, investment by 37 per cent and assets by 17 per cent. Exports were up on 1999 by a further 22 per cent, to a stunning 49.4 per cent of all output.

The MCC is Spain’s largest exporter of machine tools, and largest manufacturer of white goods such as refrigerators, stoves, washing machines and dishwashers. It is also the third largest supplier of automotive components in Europe – designated by General Motors in 1992 as ‘European Components Supplier of the Year’ – and a leading supplier of components for domestic appliances. Total Quality Management awards gained by the manufacturing co-operatives in the year 2000 included the European Foundation for Quality Management’s European Quality Prize, and Gold and Silver Q prizes from the Basque Foundation for the Promotion of Quality.

Whole factories are designed and fabricated to order in Mondragon for buyers overseas. In addition, the MCC has some 22 overseas business subsidiaries, manufacturing – for example – semi-conductors in Thailand, white goods components in Mexico, refrigerators in Morocco and luxury coach bodies in China. It is expected that the number of subsidiaries will to double to around 55 by the end of 2002.[1]

MCC construction co-operatives carry out major civil engineering and building projects at home and abroad, including the building of spectator stands and other key facilities for events such as the Barcelona Olympic Games. The steel structure for the new Guggenheim Museum in Bilbao – a building comparable in stature and complexity to the Sydney Opera House – was fabricated by a Mondragon co-operative.

Not least, the retail co-operatives – Eroski and Consum – are Spain’s fastest-growing retail chain, with some 47 hypermarkets, 796 supermarkets, 569 self-service and franchise stores and a range of other specialist outlets. An Eroski subsidiary, Sofides, operates 3 hypermarkets and a chain of 19 supermarkets in France. The MCC’s financial co-operatives – the Caja Laboral Popular credit union (CLP) and the Lagun-Aro social insurance co-operative – are among Spain’s larger financial intermediaries.

ARIZMENDIARRIETA AND EVOLVED DISTRIBUTISM

What then has been the background to this these remarkable achievements? The co-operatives were founded by a committed adherent of social Catholicism, the Basque priest Don Jose Maria Arizmendiarrieta. The Basques had been on the losing side in the Spanish Civil War. In Arizmendiarrieta’s words, ‘We lost the Civil War, and became an occupied region’.[2] Appalled by the widespread destitution in the aftermath of the defeat – by the intense privation of the period the Basques now remember as ‘the hungry years’ – Arizmendiarrieta set out to rebuild the local economy in Mondragon, and thereby the confidence, self-esteem and well-being of his parishioners.

His approach reflected a unique amalgam of ideas. Influenced as was he by the Catholic social teachings which Pope Leo XIII set out in 1891 in his social doctrine encyclical letter De Rerum Novarum, he also drew freely on a rich and disparate range of traditions, including – to name only the more obvious - Rochdale co-operativism, Raiffeisenian credit unionism, social-democracy, Christian socialism, guild socialism and Bellocian distributism. While Arizmendiarrieta never seems to have given his philosophy a specific name, it can best be understood as an ‘evolved distributism’. [3]

Distributism in its original form was developed as a means of giving practical effect to the teachings of Rerum Novarum, by the English writer Hilaire Belloc. Its basis is the belief that a more just social order can only be achieved through a much more widespread distribution of property. Distributism favours a ‘society of owners’ where property belongs to the many rather than the few, and correspondingly opposes the concentration of property in the hands either of the rich, as under capitalism, or the state, as advocated by socialists. In particular, ownership of the means of production, distribution and exchange must be widespread.

The platform of the Distributist League, which Belloc and his close friend and fellow writer, G.K. Chesterton, founded, stated bluntly that ‘Every worker should own a share in the assets and control of the business in which he works’. The distributists also strongly favoured co-operatives. As the US historian, Dermot Quinn, has noted,

‘Co-operatives were essential to the distributist ideal. They combined ownership, labour for profit, reward for initiative, a degree of self-sufficiency, elimination of waste (as in the duplication of equipment or use of unnecessary middlemen) and a strong commitment to reciprocal self-help’.[4]

Distributism has been seen by many to have faded away with the death of Chesterton in 1936 and the coming of the Second World War, but they are mistaken. Distributism had not so much died as emigrated to Canada. It was alive and well in Nova Scotia, where it was embraced and given practical hands-on effect by the remarkable Antigonish Movement which two further Catholic priests, Father Moses Coady and Father Jimmy Tompkins, established there in the straitened economic circumstances of the late 1920s.

The Antigonish Movement can be seen to have been, in a very real sense, the precursor of Mondragon, and Coady and Tompkins to have been Arizmendiarrieta’s predecessors.[5] It is unlikely that as widely read and attentive a student of Catholic social teachings and ways of giving effect to them as Arizmendiarrieta could have been unaware of the Antigonish Movement.

As the Canadian scholar, Michael R. Welton, notes in his recent biography of Coady, as early as 1938, news of the exploits of the Antigonish Movement had spread ‘even to the inner sanctum in Rome’.[6] The strong support of Pope Pius XI for the Movement was set out that year in a letter over the signature of the then Secretary of State of the Vatican, Cardinal Pacelli. ‘May the work grow and flourish’, the letter reads, ‘and with unswerving purpose of mind and will, be carried on to a complete fulfilment’. [7] When Pacelli succeeded to the papacy as Pius XII, he re-affirmed papal support for the movement by naming Coady as a Domestic Prelate with the rank of Monsignor. The appointment was announced in 1946, when Arizmendiarrieta’s work in Mondragon was getting into its stride.

Throughout the late 1930s and into the 1950s, Catholics throughout the world turned to Antigonish – and in many instances visited there - for re-assurance that implementing the teachings of Rerum Novarum was a practical proposition. A key historian of the Movement - and onetime Associate Director to Coady at the Extension Department of the University of St Francis Xavier which so largely inspired its development - Alex Laidlaw, concludes that ‘Where churchmen preached endlessly about the social encyclicals, never daring even to hope that they would be translated into action, the Antigonish program said: “here are ways in which the teachings of Rerurm Novarum and Quadragesimo Anno can be put to work right away … let’s to the task”’.[8]

Sentiments closer to Arizmendiarrieta’s mind and heart, or more likely to have attracted his attention, are difficult to imagine. At the precise point when he was thinking through the problem of how achieve a revival of economic activity in and around Mondragon, the Church was holding out Antigonish to his co-religionists as its answer.

Arizmendiarrieta’s ‘evolved distributism’ stemmed from two basic principles. It was his strong belief that only work and property – as opposed, for example, to consumption or saving – were so central to the lives of ordinary people as to provide the foundations on which an enduring just society could be built. He also believed strongly in the doctrine of subsidiarity – the doctrine that a higher body should not assume on behalf of a lower body functions the lower body as able to perform for itself - which was introduced by Leo XIII in Rerum Novarum and elaborated by his successor, Pius XI, in the further encyclical Quadragesimo Anno in 1931. Quadragesimo Anno reads:

Just as it is wrong to withdraw from the individual and commit to the community at large what private enterprise and industry can accomplish, so, too, it is an injustice, a grave evil and a disturbance of right order for a larger and higher organization to arrogate to itself functions which can be performed efficiently by smaller and lower bodies.[9]

In Arizmendiarrieta’s view, the remedy in the economic sphere was plain. Labour should hire capital rather than capital labour, thereby enabling workers to assume ownership of their workplaces and become masters of their own destinies. Work afforded the individual not only his livelihood but also his identity, self-esteem and capacity to fully participate in civil society. Accordingly, it was mandatory that - to the greatest possible extent - jobs should be available for all who need them, and unemployment should be eliminated or minimised.

THE BASIC PRINCIPLES OF THE MONDRAGON CO-OPERATIVE EXPERIENCE
Arizmendiarrieta’s conclusions endowed the co-operatives with guiding principles, which ultimately were codified and adopted as a ten-point statement of ‘The Basic Principles of the Mondragon Co-operative Experience’ at their congress in 1987. The ten points are respectively: open admission, democratic organization, sovereignty of labour, the instrumental and subordinate character of capital, participatory management, solidarity, inter-co-operative co-operation, social transformation, universality and education.

The statement reads in part that admission to a Mondragon co-operative is available without discrimination on religious, political ethical or gender grounds, subject only to applicants agreeing to be bound by the principles and proving that they are appropriately qualified to carry out such jobs as may be available. Members participate in the governance of the co-operatives on an equal footing, irrespective of their positions, seniority, hours worked or capital contributions. The co-operatives recognise the primacy of labour in their organization and the distribution of the wealth they create; seek to minimise the contracting of workers who are not admitted to membership; and endeavour to provide work for all who are in need of it.

Capital is seen as being an instrument, subordinate to labour and subject to a maximum rate of return. The democratic character of the co-operatives implies a progressive extension of opportunities for involvement by their members in business management, through mechanisms and channels for participation, freedom of information, consultation, the implementation of social and professional training plans for members and the establishment of internal promotion as the preferred means for filling positions of higher professional responsibility. Solidarity is to be observed, both internally among members of the co-operatives with the effect that the highest overall remuneration should not exceed the lowest by more than a ratio currently fixed generally at six to one, and externally so that the rates for equal work are roughly the same within the co-operatives as in the wider community. [10]

There should be co-operation by co-operatives, both within and between sectoral groups, and by the co-operatives as an overall entity with the Basque and international co-operative movements. The MCC should contribute to economic and social reconstruction and to the creation of a Basque social order which is more just and expressive of solidarity; act in solidarity with all who are for economic democracy in the sphere of the social economy; and champion the objectives of peace, justice and development, which are essential features of international co-operativism; and provide education and training in co-operation for its members, management bodies and, in particular, for the younger generation of members on whom its future depends. These Basic Principles broadly reflect – and in key respects improve upon – those of the world peak council of the co-operative movement, the International Co-operative Alliance.[11]

STRUCTURE AND GOVERNANCE OF THE CO-OPERATIVES

Arizmendiarrieta’s thinking also largely shaped the structures and governance procedures within and between the new co-operatives. The basic building blocks of the MCC are its manufacturing, retail, service and construction co-operatives, otherwise known as primary co-operatives. Each primary co-operative is governed by a General Assembly. General Assembly meetings are held at least annually to receive reports and determine policy. The Assembly in turn elects, by and from its number and, on a one-member-one-vote basis, a Governing Council, with from three to twelve members. The Council steers the affairs of the co-operative between Assembly meetings. Governing Council members hold office for staggered four-year terms, with elections at two-year intervals.

There is also an Audit or Watchdog Committee to independently monitor the co-operative’s financial performance and its compliance with its formally established policies and procedures. The Governing Council meets regularly, on a consultative basis, with a Management Council consisting of the Chief Executive Officer and his senior executives. Independent of the Assembly and its offshoots, workplace groups within the co-operative elect Social Councils, which have a quasi-trade union function, with responsibility for matters such as job evaluation and occupational health and safety.

Individual co-operatives are linked with one another in co-operative groups. Originally, the groups had a geographical basis. However, with the establishment of the MCC in 1991 – with the replacing of Mondragon Mark I by the current Mark II model – they have been re-constituted along functional lines. There is a Financial Group, a Distribution Group and an Industrial Group, with the Industrial Group in turn split into seven sub-groups. The aim is for the co-operatives within each group to engage in in-depth and continuous strategic planning, to identify and exploit economies of scale and business synergies, and to operate within an agreed overall strategic framework.

A further and final level of linkage is afforded by the peak bodies of the MCC: the MCC Congress, the General Council and the Standing Committee. The key role of the Congress is setting the overall policy and direction of the co-operatives. The General Council is responsible for drawing up and applying corporate strategies and co-ordinating the activities of the co-operatives and co-operative groups. The Standing Committee monitors the performance of the Committee and the groups, and sees that the decisions of the Congress are given effect.

REASONS FOR SUCCESS

To what then is the effectiveness of these arrangements attributable? Technical and scientific excellence apart, the key factors can be summarised as motivation on the part of members of co-operatives, solidarity and mutual support within and between co-operatives, and competitive advantage consequent on agency cost savings.

As to motivation, the success of the co-operatives stems from the fact that every permanent worker is an equal co-owner of his workplace, with an equal say in its affairs on a one-member-one-vote basis and an equal proportionate share in its profits or, on occasion, losses. Each worker has a direct personal stake-holding in his co-operative, through an individual capital account which is credited annually with his share of the co-operative’s profits, and enables him to maintain an on-going appraisal of the performance and its management and his fellow members. A related incentive the possession of a secure job in a region characterised by high unemployment. In the words of a recent president of the MCC, Javier Mongelos, “The workers who own these co-operatives know their future depends on making profits”.[12]

Solidarity is a basic value of the co-operatives that is expressed in several ways. As has been seen, solidarity within the co-operatives is exemplified by a flat compensation scale that a 1987 Participative Action Research (PAR) study of Mondragon’s Fagor group of co-operatives under the leadership of the Cornell University anthropologist, Davydd Greenwood, and the then Director of Human Resources at Fagor, Jose Luis Gonzalez, has identified as being ‘among the most egalitarian found in industry anywhere’.[13]

Solidarity between co-operatives is evident in the inter-co-operative support funds such have been established respectively to help out co-operatives that encounter difficulties and thereby preserve jobs, and to make available special capital allocations for expanding existing businesses and creating new ones. Solidarity on the part the co-operatives with the wider community is expressed through the 10 per cent of the surpluses of the co-operatives which they contribute to community project and – has been seen – the fixing of rates for jobs at roughly the same levels as in nearby conventional firms.

A further instance of solidarity is the servicing of the primary co-operatives by a unique system of secondary support co-operatives. Arizmendiarrieta became aware at an early stage of the development of the co-operatives of the need for them to be to the greatest possible extent self-sufficient. The support co-operatives – along with the co-operative groups – were his answer. Capital is mainly sourced by the primary co-operatives from a support co-operative, the Caja Laboral Popular (CLP) credit union, as is superannuation and other benefits from the Lagun-Aro social insurance co-operative, industrial research and development services from the Ikerlan and Ideko research and development co-operatives and technical skilling from the university of technology co-operative.

In particular, the Mondragon credit union, the CLP, has been much more than simply a source of capital for expanding current co-operatives or creating new ones. In the phase of rapid expansion, which preceded the maturing of the co-operatives as signalled by the establishment of the MCC, what was then the Empresarial or Entrepreneurship Division of the CLP offered a uniquely comprehensive and effective service for incubating new co-operatives and ensuring their success. Groups seeking to establish co-operatives were initially assigned a mentor or ‘godfather’ to work with them in the preparation of their business plans and loan applications. Once loans were secured, the mentors remained with the co-operatives in order to assist them in the setting up of their businesses and enabling them to operate profitably.

As a condition of its loan, a new business was required to enter into a Contract of Association with the CLP which specified – among other things – its structure and processes. It was likewise a condition of the contract that specified performance and financial data should be reported to the CLP on a regular basis. Thanks to regular and comprehensive reporting, the CLP could count on receiving early earning where co-operatives were experiencing difficulties, and thereby provide added specialist support through an Intervention Group within its Empresarial Division. So effective was the Empresarial Division that only a handful of co-operatives have failed to become going concerns. Consequent on the establishment of the MCC, the functions of the Empresarial Division have been hived-off from the CLP, with some elements being incorporated within the MCC and others in new management consultancy and support co-operatives, such as Lankide Suztaketa I and Lankide Suztaketa II, and the fledgling new business incubator, Saiolan. As the World Bank economist David Ellerman has written, ‘Just as the systematised innovation of the modern scientific research laboratory represented a major advance over the garage laboratory, so the institutionalisation of entrepreneurship in the Empresarial Division of the CLP represented a quantum leap over the isolated and unorganised small business entrepreneurs of the capitalist world’.[14]

As to agency savings, the co-operatives can be seen in summary to enjoy a degree of competitive advantage consequent on their ability to minimise what agency theorists call ‘the basic agency dilemma’ - on their ability to reduce and perhaps ultimately eliminate divergences of interest which emerge inevitably between principals and agents in an agency relationship, and which thereby give rise to costs which defeat or detract from the purpose for which the relationship was created. From the perspective of creating a more rational and equitable productive system, what Mondragon is about is primarily the evolution – albeit as yet far from complete – of systems within which all principals are agents and agents principals. [15]

Needless to say, none of this implies that there are no differences of opinion within the co-operatives, or that issues are not hotly debated. As Greenwood and Gonzalez concluded from their research at Fagor: ‘Fagor is an organization that carries out its operations through discussion and debate. … The corporate culture does not resolve the issue or homogenise opinions: it tells the membership what it is important to debate about’. [16]

It follows that a key off-setting factor is the higher transaction costs which may be incurred by the co-operatives for the democratic, consultative and inclusive procedures whereby divergent viewpoints are brought into closer alignment with one another. The bottom line for their competitive advantage is the margin by which the reduction in their agency outlays exceeds the transaction costs of achieving it. Retaining and enlarging the agency advantage of the co-operatives is a key requirement – perhaps the most important single requirement – for their future well-being. Its significance cannot be over-stated. It cannot be taken too seriously.

DISAFFECTION

Even so, there are some disturbing signs that it has been insufficiently addressed. Significant levels of disaffection in some co-operatives have been identified in a number of attitudinal studies that were carried out in the mid-to-late 1980s and early 1990s. These studies were, in the first instance, the Greenwood and Gonzalez research at Fagor[17]; secondly, a survey of attitudes of members to their co-operatives undertaken for Ikasbide – the predecessor of what is today the Oralora institute – in 1990, by the Director of its Office of Sociological Research, Mikel Lezamiz[18]; and, finally, research conducted by the US scholar Sharryn Kasmir between 1987 and 1990, and reported in her largely critical account of the co-operatives in 1996.[19]

The nature of the problem is encapsulated by a member of one of the co-operatives, whom the Fagor research quotes as stating that, in the past, ‘if you saw a piece of scrap on the floor, you picked it up because it was worth a duro (a five peseta coin). Today, you give it a boot, because today the co-operative doesn’t belong to all of us’. [20] In the words of another respondent, ‘power is found above … although they say in the co-operatives we are all equal, it is not true, because I am here, below’. [21]

Greenwood and Gonzalez argued in their rigorous and persuasive analysis of the Fagor data that this damaging “‘discourse of ‘those above’ and ‘those below’” stems directly from a failure on the part of the co-operatives to match their highly democratic and participative mechanisms of governance with comparably inclusive and empowering practices at the shopfloor level:

Fagor is now caught in an institutional dilemma that does not give sufficient attention to the active development in participation in the workplace and members are aware of it. … The dissonance between the experience of being a member with equal rights and being a worker, technician or manager operating in a hierarchical system with important differentials is experienced as an inconsistency. … For those who operate on the work-floor the sense of not participating in key technical and production decisions, the feeling of being subject to technical and managerial whims, and the consequent belief that they are not being taken as equal members is pervasive.

The analysis concluded that what was needed most was for the Fagor co-operatives ‘to re-introduce more problem-solving into the work-place and to democratise production processes as they have democratised governance’. [22]

What would emerge were similar research to be conducted today is unclear. While some have argued that increasing competitive pressures and emphasis on customer satisfaction pursuant to the requirements of Total Quality Management is further distancing the co-operatives from the participative mechanisms that the Fagor research saw as being crucial for their success, significant indications of a renewed commitment to participation are also evident.[23]

For example, in 1997, the MCC convened a major international symposium on participation - the ‘Symposium on the Future of Participation’ – to show-case world best practice participation for the co-operatives. One outcome was a heightened recognition that ‘open book management’ – the making available to members of extensive financial and statistical data on the performance of their co-operatives – is likely to be ineffectual, and perhaps counter-productive, in the absence of training programs to equip the intended recipients with the skills to properly interpret and make use of it.

The remedy in part has been seen to be new training and re-training modules for managers, that are being introduced progressively throughout the co-operatives, under the guidance of their sociologist author, Lezamiz. The content of those already in place includes leadership skills, co-operative values, commitment to the co-operative and its objectives, change management, team management, communications management and involvement with the firm’s environment.

Following prolonged and robust debate within and among the co-operatives about whether and if so in what form they have an obligation to implement participative arrangements for their increasingly numerous overseas subsidiaries, the MCC established a high-level working party on the matter, including its then president-elect, Jesus Catania. The committee’s recommendation – that participative arrangements should be introduced into the overseas subsidiaries systematically, on a case-by-case basis – has been adopted by the MCC, and the committee has been re-tasked to oversee its implementation. What the decision means in practice has yet to emerge, but its implications are extensive.

New participative measures are being introduced into the Eroski retail outlets in areas of Spain other than the Basque region, which originally were structured other than as co-operatives. Eroski’s stated aim for those of its outlets that are not co-operatives is that at least half their workers will also be shareholders within five years. The US scholar George Cheney quotes Lezamiz – a member of the Fagor study team and subsequently the initiator of the Ikasbide research – as having insisted to him in 1994 and again in 1997 that many workers ‘are experiencing workplace democracy in a more concrete way than they have ever experienced it before’.[24]

It is important in thinking about these matters to keep in mind the overall assessment of the co-operatives arrived at by Greenwood and Gonzalez in the light of research at Fagor that they characterise as having been ‘intentionally critical’. They wrote:

The reader should not misunderstand this to mean that we developed a negative view of the co-operatives. The truth is the opposite. The co-operatives are strong because they can withstand conflict and because they build improvements out of gradual conflict resolution.[25]

A key to further progress for the co-operatives – to further reducing the basic agency dilemma and thereby enhancing their competitive advantage - appears to be to make democratic and participative practices a lived experience as much on the shopfloor as at the governance level. What is needed is for all members of the co-operatives to feel as powerful and personal a sense of ownership of their workplaces as would sole-proprietor shopkeepers or small manufacturers.

WHAT HAS MONDRAGON TO GIVE TO THE WORLD?

What lesson, then, can countries like Australia and the United States learn from the Mondragon experience, and what can they give back in return to Mondragon? What has Mondragon to give to the world, and what does it stand to gain?

Greenwood and Gonzalez concluded from their studies of the Fagor co-operatives that ‘Perhaps the most important reason for understanding Mondragon is that the co-operatives may have found solutions to key economic and social problems of industrial production under contemporary conditions’.[26] In the first instance, Mondragon demonstrates the feasibility of worker ownership – of the workability of labour hiring capital rather then capital labour. Mondragon has not only grown from its standing start into a major conglomerate, but survived with flying colours the points of inter-generational succession where so many of its counterparts, and co-operatives and mutuals of other kinds, are wound-up or become moribund.

Given Mondragon, it can never again be argued that worker ownership even of large-scale enterprises is impossible. At the least, the Mondragon experience should be a powerful source of encouragement for the establishment of employee share ownership plans (ESOPs). As the late Professor William Foote Whyte, co-author of the most comprehensive account of the co-operatives to date, Making Mondragon: The Growth and Development of the Worker Co-operatives Complex, has noted:

ESOPs can be an important instrument for ensuring that workers retain ownership over the long run and for giving them the possibility of participating in decision-making. ESOPs do not guarantee that the workers will participate in decision-making, or even gain control of management, but it does keep such possibilities open.[27]

One of the more recent of innumerable striking examples of ESOPs has the $US810 million buyout of the Appleton Papers, by the firm’s 2600 employees in November, 2001.

A report of the buyout reads that ‘The transaction ranks as one of the largest employee buyouts in history and marks the third paper industry buyout in three years, after the 45 per cent employee stake in Blue Ridge Paper and the 40 percent employee stake in Blue Heron Paper’.[28] Mondragon highlights the need for ESOPs legislation that properly encourages and facilitates the establishment of ESOPs, while providing safeguards against their being abused to confer disproportionate benefits on senior management.

Secondly, Mondragon demonstrates the uses of credit unions and other mutualist financial intermediaries as a means of bringing about local and regional economic development. It is unlikely that the Mondragon co-operatives would have grown to their present size or contributed on so spectacular a scale to job growth and the well-being of the local and regional economies, had it not been for the role of the CLP in mobilising the necessary capital. The CLP adopted at the outset the slogan ‘savings or suitcases’ – save locally for investment in local enterprises, or pack up and leave for because local jobs were likely to be unavailable. Its approach fell on receptive ears. People flocked to save with CLP, thereby enabling it to meet virtually in full the requirements of the co-operatives, until it was required by the Bank of Spain in the early 1990s to place a higher proportion of its loans with other borrowers.

Even today, the CLP remains a key source of capital for the further expansion of the co-operatives. In Whyte’s view, Arizmendiarrieta’s insistence that the co-operatives should be financed through debt rather then equity – through what was, in effect, the members lending money to their workplaces through their individual capital accounts and their credit union savings – must be ranked among the most significant of his many contributions to their success.

Its importance is not limited to the relative freedom from dependence on banks and other conventional financial intermediaries that it has enabled the co-operatives to acquire. There having been no need for the co-operatives to raise capital by issuing their members with shares, they are thereby are the less likely to attract the unwelcome attention of predatory would-be demutualisers. Whyte wrote: ‘Don Jose Maria made a number of other social inventions, but this initial one was most crucial.’[29]

There is no reason why Australian or US credit unions should not re-task themselves so as to shift their lending, either in part or wholly, from its present focus on personal and housing loans to bringing about economic growth for the local and regional communities of whose capital they are custodians. For example, the United Food and Commercial Workers (UFCW) credit union was the main source of equity financing for members of the union’s Local 1357 in Philadelphia, in their buyout of two abandoned supermarkets, which were then re-opened as worker co-operatives.[30]

Alternatively, new credit unions could be created for the purpose, perhaps under the CLP’s original ‘Savings or Suitcases’ rubric. In either case, risk could be minimised by syndicating larger loans between numbers of credit unions. Such risk assessment skills as were unaffordable for local and regional credit unions on an in-house basis could be provided collaboratively on their behalf, by peak bodies such as, in the case of Australia, the Credit Union Services Corporation of Australia Limited (CUSCAL). Here again, the Mondragon experience should be an incentive for enacting legislation empowering credit unions to make loans for non-traditional purposes, without sacrifice of their capacity to comply with stringent prudential requirements.

Nor need this be all. Mutual insurance societies, regional superannuation funds and pooled development funds likewise are capable if they so choose of taking up the task of harnessing local capital for local development. The story of America’s great Nationwide insurance mutual is a case in point, demonstrating as it does how the mutual was used to further the interests of its member policy-holders, in spheres other than insurance, under the inspired leadership of its founder CEO, Murray Lincoln. Lincoln wrote in his autobiography in 1960:

Because we are a company owned by our policyholders, we want them to run us. We turn to them for all sorts of decisions – encourage them, in fact, to tell us what they want, and what they don’t – for this is, literally their business and their concern. And because it is, it is going to be run in their interest, to suit their needs, and not simply to satisfy a corporation’s balance sheet. [31]

It is at least open to serious question whether so high a proportion of the members of mutualist insurance and building societies would have joined in the recent Gadarene rush to demutualisation if those bodies had demonstrated greater sensitivity to their changing needs, and willingness to respond to them.

Thirdly, the CLP demonstrates the capacity of mutualist financial intermediaries to transcend their origins as lenders, and assume additional functions such as of business incubators. Just as the cooperatives are unlikely to have prospered, or perhaps even survived, in the absence of the credit union as a source of capital, so too they would have done much less well without the services of its Empresarial Division as an incubator - in David Ellerman’s striking phrase, as a “factories factory”.

To the extent that it might be difficult in the US or Australia for purely local or regional credit unions to fund incubator services of the scale and sophistication of the Empresarial Division from their own resources, that function could also be assumed on their behalf by peak bodies, such again as CUSCAL. It may well be that the interests of nascent worker co-operatives would be better served by incubators based on credit unions and other mutualist financial intermediaries than by their state or municipal counterparts.

Fourthly, the relationship between the Mondragon primary co-operatives and the CLP and its counterpart secondary support co-operatives, such as Ikerlan, demonstrates the strengths that accrue from measures formalising and reinforcing the inter-dependence of businesses and their sources of goods and services. The amounts credited annually to the capital accounts of members of the support co-operatives and of the primary co-operatives are tied to one another.
Neither benefits without the other, and there is constant feedback to the effect that in order for either to succeed both must do so. Related interdependencies, reciprocities and mutual support are evident within the manufacturing, retail and financial sectoral groups.

There are affinities here with the highly successful networking arrangements between businesses and their suppliers that have contributed so notably to the economic development and well-being of Northern Italy. Recent research in Italy by the UK scholar and former CEO of the employee-owned firm Tullis, David Erdal, suggests that employee ownership also has wider benefits.

Erdal reports that:

On fifteen of seventeen quality of life measures, the community with high employee ownership is la better place to live than one with least employee ownership. Residents of the community with employee ownership are less likely to be victims of crime, more likely to have feelings of confidence in public authorities, more likely to have a feeling of security, less likely to be involved with domestic violence, more likely to stay in school, more likely to have training after school, more likely to enjoy better physical and emotional health, more likely to have a network of friends they can rely on in time of trouble and more likely to give blood.[32]

Erdal’s conclusions are broadly consistent with those of the US scholar Robert Putnam in his seminal Making Democracy Work: Civic Traditions in Modern Italy.

It remains for the rest of the world to begin to avail itself of these and other lessons of the Mondragon experience. One obstacle is that Mondragon, like Antigonish before it, is as much off the beaten track conceptually as geographically. Its precepts about how people should work together and relate to one another are so remote from those of the current conventional wisdom as to be readily overlooked. There is no means by which Mondragon can be drawn systematically to public attention on the scale to which its intrinsic merits and potential benefits entitle it.

A second obstacle is that no focus for Mondragon studies has as yet emerged. For all that scholarly interest in Mondragon is increasing, what gets written about it is fragmented and dispersed across a wide range of disciplines including – to name only the more obvious – industrial relations, management studies, political science, history and theology. There is no single journal, web site or forum that brings together and integrates them, and thereby enables Mondragon scholars to be made aware of what one another are doing, compare notes and cross-fertilise their respective insights. Not least, there is no mechanism for on-going dialogue between students of Mondragon co-operation and its practitioners within the co-operatives.

An International Mondragon Studies Association
What is required most, in order for Mondragon to gain benefits from the rest of the world commensurate with those the world stands to receive from it, is an International Mondragon Studies Association. The establishment of an International Mondragon Studies Association would be beneficial as much within as outside the co-operatives. For example, another important attribute of the co-operatives has been their commitment to the principle of equilibrio - to the balancing of the need of individual members with those of the co-operatives, and of the co-operatives with those of the co-operative groups and the MCC.

As William Foote Whyte and Kathleen King Whyte noted in their pioneering account of the co-operatives:

In discussions of important decisions, the word equilibrio appears again and again as a justification for any action proposed. The basic idea is that life in a co-operative should not be carried on as if it were a zero-sum game in which some win and some lose. There must be a balancing of interests and needs; we hear it said that technological imperatives must be balanced with social objectives and the financial needs of the firm must be balanced with the economic needs of the members.[33]

A no less important aspect of equilibrio for the co-operatives is its maintenance within the sphere of the topics and sources on which they draw in the up-dating of their thinking.

However, it is not clear that this requirement is adequately met by the consultants and writers to whom Mondragon managers currently look for guidance and inspiration. As George Cheney reports in a recent study of Mondragon:

From a number of managers I interviewed there, I heard comments along the lines of this one: ‘Well, what choice do we have than to adopt the best management programs of today?’ But when I questioned them further on the meaning of ‘best’. they usually pointed to the most popular books on organization in the United States (such as The Machine That Changed the World by Womack, Jones, and Roos), to the managerial program exports of Japan (such as Kaizen), to the best-known management consultants (such as Peter Drucker), and to ‘the way everyone is talking about these things in America’.

Cheney concludes that:

At Mondragon the ‘received wisdom’ of prominent management consultants and writers is often accepted virtually without question. … It was evident that both the language and methods of re-organising involved substantial borrowing of concepts from the experiences of non-co-operative multinational corporations. I was repeatedly surprised by the lack of creativity in formulating new programs of participation and productivity, especially considering the rich social tradition and record of ingenuity in the co-operatives”.[34]

Invaluable as are the innumerable books and journal articles that have been devoted to Mondragon, they are no substitute for a permanent forum for on-going exchange of information and opinion between external students of the co-operatives and the practitioners within them. An International Mondragon Studies Association would be a powerful corrective to the imbalances of intellectual input equilibrio to which Cheney has so eloquently drawn attention. It would also function as a central repository within which works about Mondragon could be brought together and made readily accessible. Links could be developed between the Association and the corporate journal of the co-operatives, Trabajo y Union, and thereby enable each to more readily access the audience of the other.

None of this is new. An International Mondragon Studies Association would do no more than build on foundations established by earlier researchers. Reflecting on the Fagor study in 1992, Greenwood regretted that, while the validity of its analysis had stood the test of time, ‘The PAR team did not develop an effective enough internal dissemination strategy for the results and methods of our work. … Managers, who were participants in the PAR work and had read and accepted our core notions, did not find it obvious how to translate our results into concrete management actions’.[35]

A further conclusion might well have been that a key component of such a dissemination strategy would have to have been for both the Fagor research and subsequent studies by Otalora’s Sociological Research Unit to be subsumed in a wider on-going conversation between students of the co-operatives outside and within them. In this way new questions could constantly be raised, new information brought forward, new insights offered and new hypotheses explored. Most of all, measures could be taken to ensure that Mondragon is exposed on a continuing basis to worldwide practitioner experience and scholarly research and reflection, on the challenges of workplace participation, democratisation and inclusion, which its experiences so strikingly exemplify.

In so much as it can be said that the jury is still out on Mondragon, what is at issue may well have been identified by Belloc, when he wrote in 1937:

The task is impossible unless there is still left in the mass of men a sufficient desire for economic independence to urge them towards its attainment. You can give political independence by a stroke of a pen, you can declare slaves to be free or give the vote to men who hitherto have had no vote; but you cannot give property to men or families as a permanent possession unless they desire economic freedom sufficiently to undertake its burdens.[36]

Is there within the current generation of members of the co-operatives as fierce a desire for economic independence as motivated Arizmendiarrieta and his associates? And, if so, is there also among external well-wishers of the co-operatives a sufficiently fierce will to work with them in seeing that economic freedom is not only defended and extended within them but made accessible much more widely to those elsewhere who might choose to avail themselves of it? These are fundamental and far-reaching questions. It is time for Mondragon and the world to make more of one another.

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Distributism: Economics as if People Mattered

by Dr. Peter Chojnowski

In truly "prophetic" utterances, the analysis of present circumstances, along with a consideration of the laws written into human nature which manifest themselves in history, can yield a prediction concerning the general outline of things to come. This judgment of the well-informed and perceptive mind, is somewhat undermined by only one factor. The universe and the "universe" of human society in which the inherent laws written into human nature by its Creator reveal themselves in historical events, is also a universe which contains free creatures who are undetermined as regards the means they can employ to achieve their specifically human end. Human freedom inserts a variable in the material necessity of the universe. This contingency and variability has its ultimate source in the spirituality of the human soul. It is precisely on account of his materialistic rejection of the human soul, that Karl Marx, for instance, could make such ridiculously precise predictions as to the "necessary" movement of economic, political, and social history. This does not mean, however, that there is not an inherent natural law which determine which human endeavors will "work" and which will lead to catastrophe. During the 19th and early 20th centuries, there were a group of scholars, theologians, philosopher, social critics, and poets, who predicted the inevitable demise of the capitalist economic system which was just developing in Continental Europe, but had been operative for 100 years in England. When you read their works, especially the British authors of the early 20th century, here we include Hilaire Belloc, G.K. Chesterton, and Arthur Penty, one is struck by the fact that their analyzes are more valid today than they were 70 or 80 years ago, their predictions more likely to be imminently fulfilled. What they predicted was nothing less than the collapse of the capitalist system. In the case of Belloc, in his book The Servile State, it was predicted that capitalism would soon transform itself into an economic and social system which resembled the slave economies of the pre-Christian and early Christian eras. Why did they predict such a collapse or inevitable transformation? In their writings, many reasons are given, however, we can narrow them down to three. The first, they referred to as the "capitalist paradox." The paradox is a consequence of capitalism being an economic system which, in the long run, "prevents people from obtaining the wealth produced and prevents the owner of the wealth from finding a market." Since the capitalist strives both for ever greater levels of production and lower wages, eventually "the laborer who actually produces say, boots cannot afford to buy a sufficient amount of the boots which he himself has made." This leads to the "absurd position of men making more goods than they need, and yet having less of those goods available for themselves than they need."1

The second reason is now more pertinent than when it was first given. The capitalist system, by its very nature, places the preponderance of wealth in the hands of a small minority. This monopoly on the money supply by banking and financial concerns, becomes more absolute as the capital-needing consumer must go to the banks to borrow money. Usury, now called "interest," insures that those who first possesses the money for loan, will end up with a greater portion of the money supply than they possessed before the loan was issued. As wages stagnate and interest payments become increasingly impossible to make, massive numbers of defaults will inevitably produce a crisis for the entire financial system.2 When entire nations default on loans, there will be a crisis throughout the entire international financial system. Demise is, therefore, built into the very structure of the capitalistic system in which capital (i.e., all kinds of wealth whatsoever which man uses with the object of producing further wealth, and without which the further wealth could not be produced. It is a reserve without which the process of production is impossible)3 is primarily in the hands of the few. As G.K. Chesterton rightly stated, the problem with capitalism is that it produces too few capitalists! The third fact concerning capitalism which the Distributists thought would inevitably bring down the system or lead to its fundamental transformation, was the general instability and personal insecurity which marks a full-blown capitalist economy. What accounts for this general feeling of insecurity and instability, which characterizes both the individual "wage-earner" and the society living under capitalism, is the always present fear of unemployment and, hence, of destitution and the fact that a laborer's real wages leave him with only enough money to cover the expenses of the day. Saving, so as to provide an economic hedge against the misfortune of unemployment or personal crisis, becomes almost impossible.4

The above were only some of the reasons why the Distributists, who formed the Distributist League in 1926, thought that the capitalist economy would eventually collapse. These were not, however, the only problems which they found with the system.

The social consequences of the majority being unable to afford real property, the decline and, eventual, disappearance of the trade guilds and vocational corporations, the "necessity" of wives and mothers entering the "work force," the end of small-scale family -owned businesses and farms, the decline of the apprentice system were all indictments of capitalism in the mind of those who sought to chart out a "third way" between capitalism, which is simply liberalism in the economic sphere, and socialism.

There is little doubt that the problems with capitalism which were cited by the Distributists have only grown in their proportion in our own time. The concentration of wealth, exemplified by the recent merger of Citicorp and Travelers which produced the largest banking institution in the United States with assets of $700 billion, simply boggles the mind. The institution of usury, always an necessary adjunct of economic liberalism, has caused in recent years more bankruptcies and personal debt than ever before in history. Nations, such as Indonesia, are tottering on the brink of social, economic, and political chaos because of their inability to pay the interest on their hundreds of billions of dollars in bank debt. If such a nation should go into default, it could threaten to throw a whole variety of nations into recession, depression, or worse.

It is not proper to say that the predictions of the imminent demise of capitalism were totally without fulfillment. The 1920s, 30s, and 40s witnessed reaction after reaction to the radical individualism which is the fundamental idea of liberal capitalism. Truly, the market is the institutionalization of individualism and non-responsibility. Neither buyer nor seller is responsible for anything but himself.5 The idea that if every man simply seeks after his own economic interest, all will be provided for and prosper, was almost universally rejected during these decades. We see strong reactions to economic liberalism in Russian Communism, German National Socialism, Italian Fascism, Austrian, Portuguese, and Spanish Corporatism, British Fabian Socialism, along with the American "New Deal" leftism. Thus, in the 1930s and 1940s, most of the world was ordered by ideologies which explicitly rejected the premises of economic liberalism. We must, also, not forget the international economic crash of the late 20s and early 30s, which produced economic depression, totalitarian regimes, and, finally, world war.

There is one fact which separates our day from the days of the 30s and 40s, however. The concentration of wealth and capital, the inadequacy of a man's pay to provide the basics of life and to provide for savings for the future, the lack of real property generously and broadly distributed, is masked by the reality of easy credit. Easy credit, which is not ultimately "easy" at all on the borrower, anesthetizes the populace to the grim facts of capitalist monopoly. Since we seem to be able to get all the things that we want, the reality of real money being increasingly unavailable to the average man is lost in the delusionary state of the consumerist utopia. Only when the "benefit" of usurious credit is cut off, do we realize the full extent of the problem. The greatest problem with liberal capitalism, however, is not the concentration of wealth or real property, the greatest "existential" problem created by capitalism is the problem of the very meaning and reality of work. To work is essential to what it means to be a human being. Next to the family, it is work and the relationships established by work that are the true foundations of society.6 In modern capitalism, however, it is productivity and profit which are the basic aims, not the providing of satisfying work. Moreover, since "labor saving" devices are the proudest accomplishments of industrial capitalism, labor itself is stamped with the mark of undesirability. But what is undesirable cannot confer dignity.7

It is not merely that industrial capitalism has produced forms of work, both manual and white-collared, which are "utterly uninteresting and meaningless. Mechanical, artificial, divorced from nature, utilizing only the smallest part of man's potential capacities, [sentencing] the great majority of workers to spending their working lives in a way which contains no worthy challenge, no stimulus to self-perfection, no chance of development, no element of Beauty, Truth, Goodness."8 Rather, capitalism has so fundamentally alienated man from his own work, that he no longer considers it his own. It is those with the financial monopoly who determine what forms of work are to exist and which are "valuable" (i.e., useful for rendering profits to the owners of money).9 Since man spends most of his days working, his entire existence becomes hollowed out, serving a purpose which is not of his own choosing nor in accord with his final end.

In regard to the entire question of a "final end," if we are to consider capitalism from a truly philosophical perspective, we must ask of it the most philosophical of questions, why? What is the purpose for which all else is sacrificed, what is the purpose of continuous growth? Is it growth for growth's sake? With capitalism, there is no "saturation point," no condition in which the masters of the system say that the continuous growth of corporate profits and the development of technological devices has ceased to serve the ultimate, or even the proximate, ends of mankind. Perhaps, the most damning indictment of economic liberalism, indeed, of any form of liberalism, is its inability to answer the question "why."

A) Corporatism: The Catholic Response

1) The History of the "Third Way"

To understand the history of the "Third Way," a name given to an economic system which is neither Marxist nor Capitalist by French corporatist thinker Auguste Murat (1944), we must consider the social, political, and economic realities which originally motivated its main advocates. Originally, "Corporatism," later to be termed "Distributism" by its British advocates Hilaire Belloc and G.K. Chesterton, was a response on the part of German traditionalists and Catholics to the inroads which the ideology of the French Revolution had made into their country in the early and middle years of the 19th century. The institutions which were being defended in Corporatist thought were the ancient "estates" or "guilds" which had been the pillars of Christian Germany for centuries. These corporate bodies, grouping together all the men of a particular occupation or social function, were an institutional opposition to the revolutionary doctrines of individualism and human equality. One early rightist thinker, Adam Muller, upheld the traditional idea of social stratification based upon an organic hierarchy of estates or guilds (Berufstandische). Such a system was necessary on account of the essential dissimilarity of men. Moreover, such a system would prevent the "atomization" of society so much desired by the revolutionaries who wished to remake in a new form that which had been pulverized by liberalism.10

2) Von Ketteler and the Guild System

It was, however, a German nobleman and prelate, Wilhelm Emmanuel, Baron von Ketteler (1811-1877), Bishop of Mainz, who directed Corporatism into new avenues and forced it to address new concerns. The realities which Bishop von Ketteler knew the Catholic mind had to address was the new reality of industrialism and economic liberalism. As Pope Leo XIII himself admitted on several occasions, it was the thought of Bishop von Ketteler which helped shape his own encyclical letter on Catholic economic teaching Rerum Novarum (1891).11 The "new things" His Holiness was addressing were capitalism and socialism. Both meet with his condemnation, although capitalism is condemned with strong language as an abuse of property, a deprivation of the many by the few, while socialism is dismissed outright as being contrary to man's inherent right to own property.12

Von Ketteler, also, in his book Die Arbeiterfrage und das Christenthum (Christianity and the Labor Problem), attacks the supremacy of capital and the reign of economic liberalism as the two main roots of the evils of modern society. Both represented the growing ascendancy of individualism and materialism, twin forces that were operating to "bring about the dissolution of all that unites men organically, spiritually, intellectually, morally, and socially." Economic liberalism was nothing but an application of materialism to society." The working class are to be reduced to atoms and then mechanically reassembled. This is the fundamental generative principle of modern political economy."13 What Ketteler sought to remedy was "This pulverization method, this chemical solution of humanity into individuals, into grains of dust equal in value, into particles which a puff of wind may scatter in all directions."14 Bishop von Ketteler's solution to this problem of the pulverization of the work force and the ensuing injustice which this would inevitably breed, was to propose an idea which was the central concept of medieval and post-medieval economic life, the guild system. When responding to a letter from a group of Catholic workers who had submitted the question "Can a Catholic Workingman be a member of the Socialist Worker's Party?," Bishop von Ketteler outlined the basic structure of these vocational guilds or Berufstandische: First, "The desired organizations must be of natural growth; that is, they must grow out of the nature of things, out of the character of the people and its faith, as did the guilds of the Middle Ages." Second, "They must have an economic purpose and must not be subservient to the intrigues and idle dreams of politicians nor to the fanaticism of the enemies of religion." Third, "They must have a moral basis, that is, a consciousness of corporative honor, corporative responsibility, etc. Fourth, "They must include all the individuals of the same vocational estates." Fifth, "Self-government and control must be combined in due proportion."

The guilds which von Ketteler was advocating were to be true social corporations, true vocational "bodies" which were to have a primarily economic end, and yet, be animated by the "soul" of a common faith. These "bodies," just like all organic entities, would be made up of distinct parts all exercising a unique role in their particular trade. In the days of corporate giants and trade unions, it is, perhaps, impossible to imagine vocational organizations which include both owners and workers, along with technicians of all types. These organizations would regulate all aspects of their particular trade, including wages, prices for products, quality control, along with certifying that all apprentices has the requisite skills to adequately perform the guild's particular art.

3) The Guild System and Social Solidarity

Following the intellectual path charted by von Ketteler, another German Catholic, Franz Hitze (1851-1921), wrote of the social, psychological, and, even, spiritual purposes which would be served by the vocational corporations or guilds. Claiming that "economic freedom" was only a myth serving to disguise the fact that capital actually ordered things completely with a single eye to its own advantage, Hitze saw no alternative to the economic and social control traditionally exercised by the guilds. It would be such organizations which overcame the antagonism between capital and labor which fed Marxist propaganda. In his book Kapital und Arbeit und die Reorganisation der Gesellschaft (Capital and Labor and the Reorganization of Society), Hitze states that such organizations would also end the fierce competition which is totally inconsistent with the idea of the Common Good and social solidarity. This idea that an economy can be ordered on the basis of "mutuality" and the identification of the interests of employer and employee, is difficult for those who assume that an economic system must be powered by competition and self-interest. It must be remembered, however, that such was the economic system of Christendom until the guilds were destroyed by the advent of the French Revolution.

What these traditional vocational groups were able to foster during the ages in which they ordered the life of the craftsman, was a decentralization both of property and of economic power. They, also, enabled the average craftsman to have a real say in the workings of his trade. Such economic "federalism" or decentralization prevented the development of financial monopolies. As Hilaire Belloc states, "Above all, most jealously did the guild safeguard the division of property, so that there should be formed within its ranks no proletariat upon the one side, and no monopolizing capitalist upon the other."15

B) Chesterbelloc and Distributism

It was in the early years of this century, that Hilaire Belloc and G.K. Chesterton, joined by a former Socialist Arthur Penty, inspired by Rerum Novarum, attempted to articulate an economic system which stood on a totally different set of principles than did the "new things" of capitalism and socialism. The name they gave to this system, Distributism, awkward as they themselves realized, expressed not the socialist idea of the confiscation of all private property, but rather, the wide-spread distribution of land, real-property, the means of production, and of financial capital, amongst the greater part of the families of a nation. Such a concept, along with their encouragement of the guild system, of a return to the agrarian life, and of their condemnation of the taking of interest on non-productive loans, formed the core of this "new" economic model.

In his book Economics for Helen, Belloc identifies the nature of the Distributist State by distinguishing this type of state and social and economic system from that of the Servile State and the Capitalist State. The Servile State is the one of classical antiquity, in which vast masses of the people work as slaves for the small class of owners. In this way, the economic state of antiquity is very similar to the economic system of our own time, insofar as a very small minority possess real property, land, the means of production, and financial capital, while the great mass of the population does not possess these goods to any significant degree. How does Belloc distinguish the Servile State from that of the Capitalist State, in which he counts the Britain of his own time? The difference is that, whereas the Servile State is based on coercion to force the greater part of the population, which does not possess property, to work for those who do, the Capitalist State employs "free" laborers who can choose to sign a work contract with one employer or another. In the liberal Capitalist State, one is "free" to choose to apply for work or accept work from one of the various owners of the means of production. In return for this work, the laborer receives a wage which is a small portion of the wealth that he produces.16

What distinguishes the Distributist State from the two States mentioned above, is that instead of a small minority of men owning the means of production, there is a wide distribution of property. In this regard, Belloc defines property as "the control of wealth by someone."17 Property must, then, be controlled by someone, since wealth which is not kept or used up by someone would perish and cease to be wealth.

1) England's Journey for Distributism to Capitalism

It is Belloc's historical thesis, that it was not the industrialism of the late 18th and early 19th centuries which brought about the rise of capitalism, but rather, England was a capitalist state in the making long before the emergence of the railroad or the factory. The Servile State, the state in which a small number of owners controlled the land and the men who worked the land, was a mark of the Roman civilization which gradually transformed itself, under the influence of the Catholic Church, into the feudal system in which the servus went from being a "slave" who owned nothing, to being a "serf" who could retain [some] of what he produced in the fields. The serf had the right to pass the land down to his own kin and he could not be throw off his land. Thus, the personal security and economic and social stability which characterized the Roman estate system, was carried over into medieval times.18

This historical movement, under the aegis of the Church, towards a man working on the land which he himself owned, and working for his own benefit and for that of his family, came to an end in England in the 16th century during the reign of King Henry VIII. Since the Distributist State had grown up under the eye of Holy Mother Church, it should not be surprising that it would end when She was attacked and surpressed. According to Belloc, it was King Henry's confiscation of the monastery lands in England, and his action of parceling them out among his wealthy supporters, which marked the beginning of the transformation of England from a nation in which property, the land, and the means of production were widely distributed, to one in which a small number of families control increasingly greater shares of the land. The coming of protestantism marked the transformation of the average Englishman from independent yeoman to tenant farmer. The concentration of wealth would occur, then, long before England would become the industrial power of the world in the 19th century.19

2) Small is Beautiful

There can be no doubt as to the most general form of family ownership foreseen and advocated by Belloc and Chesterton. For them, the most humane and stable economic system was one in which a majority of families farmed land which they themselves owned, doing it with tools which were also their own.20 Here he was following the lead of Pope Leo XIII, who in Rerum Novarum, advocates a similar aim: "We have seen therefore that this great labor question cannot be solved save by assuming as a principle that private ownership must be held sacred and inviolable. The law, therefore, should favor ownership and its policy should be to induce as many as possible to obtain a share in the land, the gulf between vast wealth and sheer poverty will be bridged... A further consequence will be the greater abundance of the fruits of the earth. Men always work harder and more readily when they work on that which belongs to them; nay, and those that are dear to them. . . men would cling to the country of their birth, for no one would exchange his country for a foreign land if his own afforded him the means of living a decent and happy life."21

Being Englishmen, the idea that the land meant wealth was inevitably ingrained in their conception of economics. Ownership of the land by the families who themselves worked the land would also mean financial stability, no fear of unemployment, a family enterprise which could engage, in some measure, all members, an ability to put aside food and supplies to create a hedge against destitution, a way of providing not only for one's children but for one's children's children, along with creating an economic structure which is not oriented towards corporate profits but towards providing for familial subsistence and a local market. Belloc speaks of this type of Distributist economy as the one most general throughout the history of mankind, with the possible exception of the slave economy. Capitalism and Socialism are certainly recent interlopers on the human economic scene.22

Next we must address the ways in which such a Distributist idea can be implemented on the personal and community level. In this regard, our next article will focus on the concept of a "parallel economy" formed by those who wish to begin to implement the economic teachings of Rerum Novarum and Quadragesimo Anno, along with focusing on the agrarian idea both as Catholic thought and human good sense.

References
1 Hilaire Belloc, Economics for Helen (Hampshire, England: St. George Educational Trust, n.d.), p. 62. [Back]

2 Cf. Hilaire Belloc, Usury (Hampshire, England: Saint George Educational Trust, n.d.). [Back]

3 Belloc, Economics, p. 13. [Back]

4 Arthur Penty, The Guild Alternative (Hampshire, England: The Saint George Trust, n.d.), p. vi. [Back]

5 Schumacher, Small is Beautiful: Economics as if People Mattered (New York: Harper Colophon Books, 1975), p. 42. [Back]

6 E.F. Schumacher, Small is Beautiful, p. 34. [Back]

7 E.F. Schumacher, Good Work (New York: Harper and Row, 1979), p. 27-28. [Back]

8 Ibid., p. 27. [Back]

9 Ibid., p. pp. 27-28. [Back]

10 Ralph Brown, German Theories of the Corporative State (New York: McGraw-Hill, 1947), p. 18. [Back]

11 Ibid., p. 19 and p. 79. [Back]

12 Michael Oakeshott, The Social and Political Doctrines of Contemporary Europe (New York: The Macmillan Company, 1944), p. 66. Cf. A History of Distributism, adopted from an address to the Third Way International Conference, London 16 October 1994, by Anthony Cooney, editor of the Liverpool Newsletter. [Back]

13 Brown, p. 80-81. [Back]

14 Brown, p. 53-57. [Back]

15 Hilaire Belloc, The Servile State (Indianapolis, Indiana: Liberty Classics, 1977), pp. 78-79. [Back]

16 Ibid., p. 59. [Back]

17 Belloc, Economics for Helen, p. 50. [Back]

18 Cf. Belloc, The Servile State. [Back]

19 Ibid. [Back]

20 Belloc, Economics for Helen, p. 62. [Back]

21 Pope Leo XIII, Rerum Novarum, para. 35 cited in A History of Distributism by Anthony Cooney. [Back]

22 Belloc, Economics for Helen, p. 64. [Back]

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