Action Research Cases of Mondragon: Organizational Problems in Industrial Cooperatives

The Mondrag6n Cooperatives in Spain are one of the most successful examples of industrial democracy anywhere and are the subject of worldwide attention and debate. As a group oflabor-managed businesses, the cooperatives have been at the center of a great deal of debate focusing on the ability of democratic orga­nizations to compete successfully in advanced capitalist societies (Bradley & Gelb, 1983; Kasmir, 1996; Thomas & Logan, 1982; ^thyte & Whyte, 1991). The project described briefly here involved 4 years of AR by a team drawn from the cooperatives and a number of professional researchers from outside, and resulted in a number of reforms in the cooperatives and the book about the research by members of the research team (Greenwood et al., 1992).

Mondragón is located in the Spanish Basque Country, one of the most densely populated and highly industrialized parts of Spain. The region is known because of the Basque nationalist political movement and because the Basques speak a language unrelated to any other language currently spoken in the world. As a focus of Spanish industrialization since the 19th century, the Basque Country has been a major destination for internal migration and has a non­Basque population drawn from the rest of Spain of more than 24 percent. After a long period of growth, the region experienced industrial decline due to the aging infrastructure, the high costs of doing business, and increased national and international competition. At the time the project began, the overall unem­ployment rate in the region hovered around 25 percent. Mondrag6n itself is an industrial town of about 27,000 with a much lower unemployment rate. The Mondrag6n Cooperatives employ about 50 percent of the active population of the zone and account for this radically lower rate of unemployment.

The cooperatives were founded as a single cooperative, Ulgor, in 1956 by 5 leaders and 13 coworkers. There are now nearly 200 cooperatives employing more than 30,000 worker-owners. Through worldwide recessions, the cooper­atives have remained generally solvent, and they have successfully managed the transition to competing effectively in the European Union. They manufacture industrial robots, machine tools, semiconductors, computer circuit boards, refrigerators, dishwashers, stoves, microwave ovens, electrical and plumbing supplies, and also retail food; have a variety of service cooperatives such as jan­itorial and cooking; and run a variety of schools, including an accredited uni­versity. They export in excess of 30 percent of their production.

The cooperatives were founded on principles of industrial democracy and embody the principles of worker ownership and participation. To join, a person must pay an entrance fee that is the equivalent of a year’s wages. This becomes the basis of one’s own capital account and part of a personal stake in the cooperative’s success. As pay, members receive a distribution of the profits and increments to their capital accounts. The amount distributed back to the members depends on anticipated economic performance and future capital requirements based on the cooperative’s business plan. These distributions and plans are voted on annually by all the members. The pay distribution is made according to the functional classification of the job the member holds. At the time of the study, the pay differential was 1 to 6, the lowest-paying jobs receiv­ing one-sixth the compensation of the highest-paying jobs.1

Cooperative managers, who because of this compensation scheme receive much less income than they would in a private company, are elected from among the membership for 4 years and are subject to recall. Elaborate internal governance structures provide freedom of information and strong checks and balances in decision making. The cooperative system also has its own health and retirement system, a major research and development cooperative, a major cooperative bank, and a wide variety of schools, ranging from primary to uni­versity level.

Within this system, until a subsequent reorganization realigned the entire structure and created a single overall Mondrag6n Cooperative Corporation, the Fagor Cooperative Group was the largest and best-known cooperative group and contained the founding cooperative, Ulgor. The AR project took place within the then Fagor Group.

The project began when William Foote Whyte, a well-known professor of industrial and labor relations at Cornell University, decided to write a compre­hensive history and structural analysis of the cooperatives. After a research visit in 1982 to complete gathering data for the book, he offered a seminar on what he had seen to his hosts. He made a number of critical observations about cer­tain practices within the system and, to his surprise, the Fagor director of per­sonnel, Jose Luis Gonzalez, stood up, thanked him, and then asked how Whyte would propose to help them solve the problems he had identified.

Whyte returned to the United States and involved Davydd Greenwood, a Cornell anthropologist with years of fieldwork and historical research expe­rience in the Basque Country, in the project. Together with Gonzalez, the three developed proposals for funding that lasted 2 years.

As Gonzalez stated the aims of the collaboration, and he took the lead in doing so, the goal was to develop the internal social research capacity of the Fagor Group, bringing it to a level of sophistication comparable to that already achieved in internal economic research. This kind of thinking embodied Gonzalez’s own understanding of the necessary equilibrium that the coop­eratives have to maintain between their economic and social dimensions. Nevertheless, the underlying motives for the research, the identities of the local partners, and the actual agenda of activities were not clear to the outsiders.

The AR process began with mutual visits, followed by a 1985 summer course in AR taught by Greenwood to about 15 members of the Fagor Group. This course ended with the cowriting of a preliminary monograph on crises in the history of Fagor. On the basis of this monograph, the group and the Fagor management decided to continue the project. Then followed an extensive interviewing project, another summer course, a series of focus groups, and a lengthy cowriting process by which two books about the project’s findings were written (Greenwood et al., 1990, 1992).

The cooperative participants were primarily drawn from the central per­sonnel department of the Fagor Group. They did not represent the founding generation, but rather the next generation of cooperative management. These people expressed a deep and authentic concern that the future of the coopera­tives was by no means assured. In particular, they worried that the many new members being recruited were not committed to cooperative values and that, under stress, the system would not be able to adapt.

To address these concerns, the AR team developed an analytical perspec­tive that stressed understanding cultural systems as dynamic webs of meanings that generate both contested meanings and complex and often contradictory practices. We read the books written by outsiders and insiders to the coopera­tives and articulated our critiques of them. We explored the constant use of dichotomies to stereotype desired and disapproved behavior in the coopera­tives and to contrast the cooperatives with ordinary businesses.

Over time and through training, we developed a team attitude and set of techniques that permitted the coresearchers to get into more direct touch with reality as conceived and experienced by cooperative members and to link abstract cultural formulations back to institutional structures in their organi­zational and historical contexts. The aim became to gain a differentiated, dynamic understanding of the state of the cooperatives and to do so by means of research processes that were, like the cooperatives, self-managed, open ended, and practically useful. The project began in an analysis of the feared loss of cooperative values, but gradually evolved into a full-scale AR project touch­ing on the members’ deepest fears and hopes about their collective future.

The research process that took place was unusual. The beginning July 1985 seminar opened with a colossal mismatch of expectations. The Fagor Group members clearly expected and thought they wanted academic lectures on orga­nizational culture. Greenwood came believing that most social research fails to produce useful new knowledge and that, if the cooperatives really were the self­managing organizations they seemed to be, a successful self-managing group like this should also be able to self-manage research processes and learning. Greenwood therefore refused to prepare a neat course and relieve members’ anxieties by handing over a set of tools for them to use. Rather, his goal was to develop a research mindset through which members could learn new things about themselves, find counterintuitive information, and develop action plans that linked these findings to appropriate actions. Greenwood was unwilling to teach social research tools until the group was willing to define the problems and concerns that brought it together. Greenwood believed that standard social research, with its parametric assumptions and shallow positivism, would pro­duce no useful outcomes and that no cooperative resources should be wasted in this way. He believed that the members of the Fagor Group were already researchers, but that he might be able to help them to learn counterintuitive nonparametric approaches to social research and learn to be “falsificationist” researchers. He was particularly concerned that they be alive to the complexity and diversity of the scene, because he was aware that members intended to act on their findings.

As a result of these beliefs, Greenwood came to the seminar with no pre­pared lectures, and the members of the Fagor Group were duly upset. The effect of this mismatch of expectations was to create a T-group2 atmosphere. Greenwood was not willing to teach research techniques until the group had taken responsibility for identifying the issues that should be studied and con­sidering the ethical dimensions of collaborative research within the coopera­tives, where all members, in principle, are equal.

After struggling for a period with the authority dynamics this created, Greenwood suggested that the group could begin to discover what it wanted to know by finding out how others viewed the cooperatives. The group engaged in a critical reading of the professional social science literature and insider books on Mondrag6n. The coresearchers disliked this literature a great deal because they felt it misrepresented them and their experiences. Building on this notion of misrepresentation, Greenwood argued that they had to take control of and responsibility for the development of a view of themselves if they intended to have an ongoing social research effort that met their objectives. The project developed from there.

As time went by, the group did learn many techniques of social research and developed its own view of the cooperatives. Central to this view is a vision of culture as complex and dynamic. In particular, the team came to believe that organizational culture in Fagor set the terms of conflict and contradiction in the group, and that the strength of the system was not found in absence of conflict but in commitment to broad goals and a set of rules of debate. There was no absence of prolonged disagreement about how to achieve strongly desired goals.

As the team developed its own research and interpretations, each new view was subjected to reality testing through continued research and feedback ses­sions with other cooperative members. Greenwood and Gonzalez insisted on keeping open the possibility of terminating the project at any time it ceased to be deemed useful.

Because the cooperatives are a success story and these successes are well known, the team decided to concentrate its attention on diversity, dissension, debate, and disagreement within the cooperative system. Throughout the process of conducting surveys, through a long series of interviews with members who were felt to be the most alienated in the system, and through focus groups, the research team stressed paying attention to the heterogeneity of viewpoints, sought out conflict and contradiction within the system, and tried not to flinch in dealing with the most threatening questions about the possible future of the cooperative system. The formal research process closed with a series of focus groups in which the team members subjected their most important values about cooperative life to open questioning: participation, sol­idarity, and freedom of information.

This research process sought and found conflict and contradiction, but we also discovered a great deal of strength within the system, including among newly recruited members. Gradually, it became clear that there was no funda­mental crisis of cooperative values, that the initial premise of the research itself had been wrong, and that the most common explanation for perceived prob­lems in the cooperatives was simply wrong. Yet the sense of anxiety about the future remained, and the research had produced lots of information about dissatisfaction with many dimensions of cooperative operation. The core­searchers thus began to look for other factors that could help them to under­stand the evident tensions within the system. In particular, they began reflecting on their own role and practices as part of the cooperatives’ person­nel system in creating negative conditions.

The cooperative members recognized that their initial formulation of the problems of the cooperatives as a lack of commitment by new members to cooperative values was self-serving. It became clear that they had developed a distrust of new members, who they did not feel were as committed to the coop­eratives as this group of longtime members was.

Because of the decision to do extensive interviewing of disaffected members, the team began to notice that many of the complaints were about the practices of personnel departments themselves. The disaffected members gave examples of situations in which personnel departments were guilty of applying rules impersonally to cooperative members rather than embodying coopera­tive principles and direct personal treatment of affected parties in their work. Thus, the team members began to see themselves as part of the problem that they wanted to solve.

Reflections also proceeded at a broader level. The coresearchers had enough case material and enough sense by this time that there were significant negative dynamics in the system to begin to reflect on larger processes in the sys­tem. They noticed that when some kind of problem surfaced in a workplace and a complaint was lodged, the local managers and the personnel departments often took the matter directly to the cooperative governance apparatus rather than trying to find a solution in the workplace. As this view was developed, the coresearchers came to recognize a dangerous institutional dynamic within the cooperative system. Rather than struggling to democratize the workplace, the cooperative system had developed a strong tendency to extract all conflicts from work relations and treat them as matters of governance, to be dealt with by the governance system (rules, statutes, procedures). This made the coopera­tives both unresponsive to individual claims about justice and increasingly bureaucratic. It is a beautiful example of Argyris and Schon’s (1996) Model 0­1 organizational behavior that responds to error by reproducing the conditions that make the error recur. One result was the truncation of the ongoing growth and development of workplace democracy.

Support for this view was found in one interview after another. The core­searchers began to understand better the complaints heard from members about the tension that existed when operating in a largely undemocratic work environment while simultaneously voting on the annual business plan, being able to recall management, and participating in general assemblies of the coop­erative group that often restructured the whole cooperative system in funda­mental ways. To put it another way, the members articulated an existential contradiction between their lives as workers and their lives as managers. The insider members of the research team found this result to be quite convincing because the team members were able to recount numerous episodes from their own experience in which these very contradictions were augmented by their actions as personnel managers.

Another, more abstract, dimension of reflection also characterized this phase of the research. One of the main ways the literature on Mondrag6n explains the success of the cooperatives is to attribute it to strongly shared val­ues that unite the members. Either elements of Basque culture (solidarity, egal­itarianism, and so on) or simply a strong organizational culture imposed by the priest-founder of the system and his collaborators is used to explain how, in a capitalist world, successful democratic industrial organizations can pros­per in northern Spain but not in London, Detroit, or Singapore. The core­searchers’ close reading of these analyses, coupled with their own experiences and the research process they had undertaken, invalidated these viewpoints.

The AR carried out in the cooperatives showed that every core value in the system was contested and that existential tensions abounded. Though it became clear that cooperative members shared high levels of agreement about what an ideal cooperative would be like and the kind of process rules that should govern cooperative life, they suffered significant tensions and disappointments over the daily failure of the system to live up to these values. They also had very different takes on the ways to solve these problems. Thus, the organizational culture of these cooperatives was indeed a strong one, but its strength was not to be found in its uniformity. The culture of these cooperatives is a culture of contestation, debate, and dialogue about a certain basic set of organizational principles and ethical ideals. The coresearchers came to formulate their own conception of a strong organizational culture as one that does not glue individuals together in a uniform matrix but that creates ongoing dialogue and debate over the ways to embody certain important and shared values. This view of organizational cul­ture was quite novel in the academic and consulting literature on the subject at the time, and was a direct result of this AR project.

Having reached this point, Greenwood suggested to the AR team that it should write a book to tell others about its results. This was a long and ardu­ous process, both because team writing is difficult and because writing a book initially was a very threatening notion for most of the team members. Despite their gains in competence and confidence as social researchers, the insider members of the AR team initially did not feel qualified to write for an outside audience. At the very end of the process, during a final session of reflections, the coauthors (Greenwood et al., 1990, 1992) agreed that the process of reflection that writing demanded was the richest part of the whole learning experience.

Parallel to the writing, AR as an approach to problem solving was also institutionalized in a limited way within the Fagor Group. Some 40 people had received training in these approaches over the 3 years of the project. Five pilot projects had been undertaken in particular cooperatives, with members of the AR team serving as AR team leaders in the new venues. A number of the team members quickly were given major management responsibilities within the system, three becoming general managers of cooperatives in tl].e years immedi­ately following the project and another two becoming central figures in the cooperative training system for new members and retraining for existing members. The book that emerged from the project (Greenwood et al., 1990) is now used in training courses. One of the pilot projects resulted in a funda­mental reorganization of one cooperative that is now among the most success­ful in the system.

All in all, this case shows how AR can be linked to organizational reflec­tion, training of organizational insiders, and organizational development efforts, while also reaching intellectual goals that go well beyond the limits of the particular case.

Source: Greenwood Davydd J., Levin Morten (2006), Introduction to Action Research: Social Research for Social Change, SAGE Publications, Inc; 2nd edition.

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