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Post Cooperatives: Mondragon and Elsewhere
Created by John Eipper on 01/05/12 8:15 AM

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Cooperatives: Mondragon and Elsewhere (Henry Levin, USA, 01/05/12 8:15 am)

Jon Kofas (4 January) has asked an important question.

The answer is that previous cooperatives had not worked out and implemented the conditions required for reproducing themselves. The traditional cooperative is a "mule" firm. The mule is a product of comingling of a donkey and a horse. It is hard working and serviceable, but it has one major flaw. It is incapable of reproducing itself.

What Spain's Mondragón has done is to constantly work on establishing guidelines and institutions that reproduce its governance, cooperative production methods, training and worker education, research and development, entrepreneurship, and a banking system that enables capital accumulation and financing the movement.

Workers receive a current income for "anticipated consumption," but the surplus that they generate is placed in an account in the Caja Laboral to accumulate until the time that they leave the cooperatives. This means that the cooperative movement is constantly expanding its capital and investing it wisely according to the movement's marketing and production studies on expansion or establishment of new and promising cooperatives carried out by its R & D and entrepreneurial arms.

New members buy entry shares to the cooperative before beginning work, and they can borrow to pay for them, so no promising worker is denied membership because of a lack of funds.

Traditional cooperatives failed because their success meant that as they retired their shares, the payoff had to come from the acquisition of share purchase by new members who were unable to afford the huge accumulated values of the more prosperous cooperatives. In the absence of an appropriate banking mechanism, they could not add new members to replace the retiring ones, and they eventually closed down.

We have many case studies of this. Plywood Cooperatives in the Pacific Northwest vastly outperformed the capitalist ones, but had the problem of the mule in being able to make the transition from one generation to another. Studies comparing the cooperative and capitalist cooperatives by Paul Bernstein (economist) or Ed Greenberg (political scientist) found that the cooperatives had far fewer "strawbosses" and quality control supervisors than the capitalist firms. The cooperatives were also a constructive solution to those industries heavily influenced by the business cycle such as serving the construction industry. In good times the cooperativists would volunteer for overtime to take advantage of the additional income opportunities; in the bad times they would reduce hours rather than the usual capitalist practice of "laying off" workers because as members they were entitled to employment. They would also refurbish the equipment and the plant to be prepared for the next upswing. They wasted fewer materials in production and had higher productivity according to noted labor economist John Pencavel. All of these sources can be found on Google Scholar.

JE comments: I find this topic fascinating. In response to my question yesterday about successful US cooperatives, David Duggan responded with Ocean Spray, the cranberry and juice cooperative. I presume Florida's Natural (orange juice) works the same way. Pascual Boing is a Mexican juice company owned cooperatively by its workers, who bought the company after it went bankrupt in the 1980s.  Its products are widely available in the US.

In the US, I sense that agricultural collectives, suggestive of the granges of yesteryear, are less threatening and therefore more acceptable than manufacturing collectives, which hint of Sovietization.

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  • Cooperatives: Ocean Spray (David Duggan, USA 01/06/12 2:50 PM)
    Ocean Spray has operated as a grower-owned cooperative since the 1930s, and unlike other agricultural cooperatives, where the involvement typically ends at the grain elevator or slaughterhouse, Ocean Spray is a vertically-integrated juice and fruit products company with bottling, distribution and packaging arrangements with PepsiCo and Nantucket Nectars. It now also represents grapefruit growers.

    MasterCard (formerly Master Charge) started out in the 1960s as a bank-owned cooperative with Wells Fargo as the lead, and other California banks (e.g., Bank of California) to counter Bank of America's BankAmericard (remember those), which was a proprietary product. It went public in 2006. Until then, though it could have been perceived as a "financial services" cooperative, it differed from a credit union or benevolent protection society (e.g., Moose, Elks) in that you didn't have to be a member to derive the benefits. Many offerors of MasterCards were touting "5% cashback," frequent flyer miles, and other marketing gimmicks to get consumers (i.e., non-members) to open an account.

    Here's a factoid: James St. Clair, later Nixon's lawyer against the Watergate Special Prosecutor Leon Jaworski, gained fame and undoubtedly some fortune in representing a client in a triple-damages antitrust case against the National Cranberry Ass'n, Ocean Spray's predecessor. This was before he assisted Joseph Welch in the "Have you no sense of decency, Senator" McCarthy hearings.

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    • Cooperatives: Ocean Spray and Rochdale Principles (Henry Levin, USA 01/07/12 4:24 AM)
      I was under the impression that the farm members of Ocean Spray own their farms independently and determine their pay and farming methods and investments independently and are a cooperative only in the processing, distribution, and marketing of their products.

      That is, they do not follow the famous Rochdale Principles, which are usually used as the criteria for setting out workers' cooperatives. http://en.wikipedia.org/wiki/Rochdale_Principles I looked at the entries for Ocean Spray on the web and could not find any description of their legal or operating structure. Since David Duggan (6 January) seems to have more expertise and access to this information, I would appreciate his sharing those details with us.

      JE comments:  Democratic governance and education/training are among the Rochdale Principles.  Do these tenants apply to Ocean Spray?

      (Which reminds me:  I wouldn't mind a glass of cranberry juice right now.)

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      • Cooperatives: Ocean Spray (David Duggan, USA 01/08/12 6:44 AM)
        In response to Henry Levin (7 January), I suppose I could find out about Ocean Spray's operating structure, but I think it's a bit beside the point. Ocean Spray has become a billion dollar operation by getting more than 75% of the US cranberry growers to sign up. They've innovated (cran-apple juice), extended geographically (though founded in Massachusetts, it has extended its reach to Wisconsin, the other principal cranberry growing state), and broadened their product line (grapefruit). Along the way, they've become a business-school model of efficient operations and corporate responsibility.

        JE comments: It must be satisfying for a company to become a case study for business schools--unless it's in the textbooks for how not to operate!  Enron, Border's anybody?

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