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From Mondragon to the Rust Belt: Lessons for Sacramento



I recently spent three weeks in the Rust Belt—America’s old industrial heartland—looking at the ways Cincinnati, Pittsburgh, Cleveland and Detroit have responded to economic crises. I was seeking what lessons these cities might have for my hometown of Sacramento.

This tour followed 10 days in Europe studying Mondragon, which is the world’s largest and most complex system of worker-ownership. Mondragon is located in the Basque Country, in Northern Spain. This region has taken an economic trajectory opposite the Rust Belt. While Cleveland and Detroit fell apart, the Basques clawed their way back from post-war devastation and oppression to achieve an average income that is now nearly 40 percent higher than the European average.

Mondragon: A better economy

Mondragon’s cooperative system, inspired by a parish priest in the aftermath of World War II, combines voluntary shared ownership with democratic control. Here, dozens of cooperative enterprises build washing machines and buses, assembly lines and microchips, skyscrapers and bridges; they include Spain’s second largest retailer—with 2,400 locations nationwide—and one of Spain’s largest banks.

Mondragon has also built its own systems of medicine, education, social security and more. Their co-ops employ more than 100,000 people, and have consistently outperformed the rest of the Spanish economy. They weathered a severe recession in the 1980s without resorting to layoffs of their members. Even now, Mondragon’s tens of thousands of co-owners have a degree of job security that is rare elsewhere.

Mondragon’s success is based on collective capital. A large portion of profits is allocated to the capital accounts of individual workers. But the real genius is that until they retire, that capital is pooled for investment in new cooperatives. In contrast, U.S. retirement funds are often invested in the stock market where they may be used in ways that go against the worker and the community’s interests, such as mergers or moving jobs overseas.

Mondragon is a self-duplicating system that has created a genuine alternative economy. The Basque Country feels very different from the United States, and this is especially true in the areas where the cooperatives are well established. The co-ops link their starting wage to the prevailing wage, and generally limit executive pay to only six times starting wages of the workers; the chief-executive officer of the whole system can make only nine times the base wage. As a result, I saw much less visible poverty and hardly any conspicuous wealth.

I was also impressed by thriving rural industries. Small towns tucked into beautiful mountain valleys boasted large modern factories, sometimes numbering in the dozens. It was as though Placerville had a clean, locally owned manufacturing sector as a centerpiece of their economy. It is the sort of economy I would expect a community to choose, if given the choice.

I’ve never seen anything like it in California.

A new Rust Belt?

Sacramento has never been a big factory town, but it is facing major structural unemployment similar to what struck the Rust Belt a generation ago. Our main industries (agriculture, government, real estate) are struggling. We have a number of empty and half-built buildings, fallow fields and dead orchards. The State of California has a fiscal crisis with no end in sight, affecting this capital city like nowhere else.

Every time Sacramento gets some good news, it is quickly overwhelmed by bad. The real estate market may be perking up again, but news from the state of California—Sacramento’s largest employer—is nothing but grim: $20 billion deficits stretch off into the future. Agriculture is also quite precarious.

During my trip—a sort of economic pilgrimage—I sketched out some areas for further research, which I hope will prompt my community to ask hard questions as it faces these interlocking crises.

Will Sacramento be another Cincinnati, whose concentration of corporate headquarters protected it from the worst of deindustrialization? Or will we follow Detroit’s full-scale collapse, which has driven away more than half of the city’s population and created great opportunity for grassroots development? Will we take the path of Pittsburgh, which reinvented itself through “meds and eds”? Or will our reinvention take the form of Cleveland, where subsidy-based economic development failed and worker ownership is now regarded as the best cure for rampant poverty?

At first glance, there isn’t much similarity between these cities and our own. Our climate and culture are obviously different, as well as our economic foundations. Sacramento has much less of the deep urban decay that has stricken the Rust Belt.

However, Sacramento faces serious crises: water shortage, real-estate collapse and over-extended governments. Our troubles could eventually rival those of the Rust Belt, so we should learn from their experience and consider job creation through Mondragon-style cooperatives, as they are starting to do. This approach is relatively low cost, protects local wealth and can have a high payoff whether the economy improves or deteriorates. More importantly, cooperatives can make improvement more likely.

Each of the cities I visited are now home to some sort of cooperative organizing, more or less modeled after Mondragon. To see how this developed, and hopefully shorten Sacramento’s learning curve, let’s briefly look at their experiences.

A tale of four cities

Cincinnati is home to an unusual concentration of major corporations. These headquarters have created a high concentration of white-collar jobs, which may have been resistant to the industrial job losses faced by the region beginning around 1980. Unemployment here was not as bad as the other cities. Still, Cincinnati has not escaped unscathed and now has unemployment around 9.4 percent, compared to 10 percent nationally and 12.3 percent in Sacramento.

In Cincinnati, I visited many decaying neighborhoods, and saw factories replaced by half-vacant office parks. These sorts of problems—along with a visit by local nuns to Mondragon—have inspired Interfaith Business Builders to launch a janitorial cooperative, giving low-income residents a chance a business ownership and control of their workplace. IBB is now working toward opening a retail store.

Pittsburgh was devastated by the collapse of the domestic steel industry, but reinvented itself through education and medicine, and has done relatively well in recent years. Local unemployment is now at only 7.7 percent, well below the national average. However, there are limits to Pittsburgh’s recovery, and the city’s many college graduates often move away in search of work.

Recognizing the need for more jobs, Pittsburgh-based United Steelworkers—North America’s largest industrial union—are launching an historic agreement with Mondragon to create worker cooperatives throughout North America. This initiative, coincidentally announced during my visit in late October, marks the first time that Mondragon has publicly partnered with another group outside Spain to reproduce itself.

This is big news, but USW is not the first large organization to attempt to recreate Mondragon’s success.

Last October, the Cleveland Foundation sponsored a study trip to Mondragon, and then led an initiative that is channeling the buying power of several hospitals and a university into the struggling neighborhoods in which they are located, an area known as University Circle.

While in Cleveland, I visited Evergreen Cooperative Laundry. This green industrial laundry is the first of a planned network of worker-owned businesses linked by cooperative financing. Ohio Cooperative Solar is also underway, and next year the foundation plans to launch a five-acre urban greenhouse to provide millions of heads of lettuce and bunches of fresh herbs, grown right in Cleveland.

What interests me most about Cleveland’s efforts is the extent to which the city’s economic leaders—including the mayor’s office—have bought into the cooperative model. The city already tried attracting business through workforce development, but the lack of connection to specific jobs undermined that approach. There is an emerging consensus that the only way to sustainably build community wealth is through community ownership of business. There is also a strong common desire to avoid the fate of their neighbor across Lake Erie.

Detroit’s struggles are well known, but their severity is difficult to grasp from afar; the once-thriving metropolis is now a ghost of its former self. I only saw a fraction of the city, but in most of what I did see, empty houses (often burned or partially collapsed) outnumber those still occupied, while vacant lots outnumber them both. The last two major grocery stores closed in 2007 and in some areas it can be a mile between convenience stores.

Detroit is full of community activists seeking to build something entirely new. Community gardens flourish. A coalition of churches has joined with the United Food and Commercial Workers union to form the Detroit Community Grocery Store Coalition. They seek to address the near total absence of food access in much of Detroit.

Detroit is not hopeless. Once again, I found people inspired by cooperatives. Local activists recently brought in a speaker from Mondragon for a few days this fall, and there was avid interest in what I saw on my trip.

Bringing it home

A month of travel has given me new eyes for Sacramento’s economic troubles and for possible solutions. We don’t have to try desperately to attract outside corporations through subsidies and weak regulation. We don’t have to wait for the job market to turn around, or for state employment to recover. We don’t have to keep relying on an agricultural system that is dominated by global commodity markets and a few corporations.

Cooperative ownership can be a key part of solving Sacramento’s problems. Rust Belt citizens are discovering what Mondragon has to offer, and we should too. Our nation and our own city are still reeling from last year’s banking crisis, so there is a greater need than ever to find new ways of doing business.

Mondragon’s example has taken a generation to gather steam in the Rust Belt, but we cannot afford to wait that long.

 
  • I am familiar with Mondragon, which is also very much like Israel’s Histadrut. Coops can be WONDERFUL organizations, and as with all human institutions, they bear some flaws as well. Historically coops were organized around agriculture around the turn of the last century, particularly in the Dakotas, Minnesota, and Montana, and they worked very successfully. They worked so well that North Dakota sought to secede from the United States at one point and set up their own state-wide community-owned government which in turned owned most industries, and provided services for communities in the outer reaches of nowhere in that flat flat state. I suppose the ‘red scare’ and red baiting of later decades destroyed the coops, for for a time, they were great institutions, and in these harsh times, I would hope we all would take another look, especially given the way fundamental needs are met, nor for the most part, not met, in our society, particular for Americans of modest means…

  • William Burg

    Sacramento has weathered this kind of change before, back when we were much more of a factory town. From the 1870s to about World War II, Sacramento was a city of factories, including some of the biggest canneries and food processing plants in the country and the only site where full-sized steam locomotives were built west of the Mississippi, and a transportation nexus for much of the west coast. When transportation shifted from rails and rivers to highways and air travel, Sacramento maintained some relevance with its two nearby Air Force bases, Aerojet and its new airport, although much of this growth resulted in suburban expansion far to the north and east. Southern Pacific’s complex organization required a lot of people skilled in management, accounting and other white-collar work, and in the postwar era as California’s need for government exploded, a lot of middle-class workers at Southern Pacific or private industry made the transition into government jobs for the State of California or the aerospace industry.

    Sacramento has a long way to fall before it reaches the level of Detroit. Despite what some online commenters would have you believe, we are nowhere near as bad off as Detroit or many of Ohio’s “Rust Belt” cities. Believe it or not, a Sacramento expatriate who wrote a blog in Dayton, Ohio often held up Sacramento, especially its central city, as a great example of smart growth and infill development compared to the collapsing central cities of Ohio.

    Despite all the sky-is-falling rhetoric and some very real problems, Sacramento’s population has continued to expand, and its central city neighborhoods still demand (and get) a premium price. There are some failures and abandoned construction projects, but there are still success stories, often based on restoration and repair of existing buildings instead of new construction in greenfields.

    As far as co-ops go, we have one here: Blue Diamond Almonds got its start as an almond grower’s cooperative. It is among the best-known and largest almond producing companies in the world. Heck, there are even still plenty of canneries in Sacramento County–they’re just outside the city limits now. Reports of our industrial irrelevance are highly overrated.

    And despite the current ridiculousness regarding state government, California is unlikely to become a radically simpler state to govern anytime soon. State government isn’t going anywhere, and at some point even the most concrete-headed teabagger may realize that governing a state of about 40 million people requires a certain level of state government–and maybe, just maybe, they will realize that California’s state government is among the most efficient (in terms of number of state employees per capita) in the nation–only Illinois has fewer state employees per capita population.

  • Andrew McLeod

    William: Thanks for commenting. It’s clear you’ve got a strong background and interest in Sacramento, and I appreciate your input.

    You’re very right that we’re not anything like Detroit 2009 or even Detroit 1967 (when the riots triggered the “white flight” that has contributed greatly to the city’s collapse). The question is whether we might be somewhat like Detroit 1965, when auto industry consolidation had already begun but the metro area population was still growing, creating pressure for jobs. It would have been impossible for someone in those days to envision what was coming. While elsewhere in Michigan, I met a man who grew up in those days, and he described his old neighborhood as literally “gone.”

    State government obviously isn’t going anywhere, but keep in mind that the auto industy is still in metro Detroit, although at a lower level than before. The question we should be asking is what portion of “Detroit” (the industry) left the city before things really fell apart. My guess is that it isn’t a huge percentage, and we should be wondering what happens if 20 percent of state jobs disappear (to correspond to the roughly 20 percent hole in state budget). What sort of ripple effect would that have? Probably not Detroit, but maybe. My hunch is that we’ll take more of a Cincinnati route, but even that isn’t all roses. And even if the city center does well, we’ve got some very poorly designed suburban areas that could easily fall apart. South Sacramento is already struggling, and there’s no reason for them to wait before attempting, perhaps, a worker-owned system of local food production, processing, and distribution.

    Thanks for the correction on my “never much of a factory town.” I suppose our manufacturing legacy is on clear display in the twin railyard brownfields that continue to vex our best efforts to develop them.

    Blue Diamond is one of only a few co-ops in our area. The list also includes Rice Growers Cooperative, California Co-op Cab, Sacramento Natural Foods Co-op, Golden 1 and other credit unions. Cooperatives are individually helpful, but no panacea; having a few of these is not likely to change anything for urban working people, who are generally just employees working for the benefit of members. Mondragon (and Evergreen) is a peculiar model of worker ownership, which ties jobs to their communities. I believe that’s what we really need.

    Comparing ourselves to Detroit (or even Pittsburgh) is hard and humbling, but I think we should be proactive about that so we can see and address the warning signs that are already around us.

    And bbbmer, thanks for bringing up the red scares. That dynamic has been a huge part of why we don’t have more of a co-op economy, even though there have been times that this approach has succeeded on a massive scale. For example, check out Upton Sinclair’s 1934 gubernatorial campaign, known as EPIC. He got 37 percent of the vote in the general election, despite intense red-baiting: http://www.socialsecurity.gov/history/epic.html.

    Also consider Rep. Jerry Voorhis, who served in Congress for a decade, later directed the Cooperative League of the USA (now National Cooperative Business Association) and wrote a book called “American Cooperatives” that should be required reading. He was voted out of office in 1946, largely due to Richard Nixon’s use of red-baiting.
    http://en.wikipedia.org/wiki/Jerry_Voorhis

    • William Burg

      Sacramento also experienced plenty of “white flight”, and had its share of neighborhoods leveled–the old Japanese, Chinese, Latino and African-American neighborhoods along what is now Capitol Mall and the K Street Mall area. Sacramento was able to counteract the effects of some suburban white flight by absorbing some of the new suburbs into the city limits, a strategy used by many western cities. This has also resulted in Sacramento’s patchwork pattern of urban development–there was no central planning, we just absorbed already-built subdivisions after they were built instead of making regional decisions about city growth and expansion. Sacramento didn’t have riots on the scale of Watts or Detroit, but the African-American diaspora neighborhoods of Del Paso Heights/North Sacramento and Oak Park both experienced some pretty intense incidents in the late 1960s, including incidents involving the local chapter of the Black Panthers.

      The two railyard brownfields aren’t all that vexing: both plans are relatively recent, they were functioning railyards that didn’t fully close down until the 1990s, and things like toxic remediation and complete planning take time–both are getting done, just slowly.

      I assume that maybe the folks in Spain may have been inspired by some of the anarchist/collectivist actions from the Spanish Civil War period, when anarchists and communists set up cooperatives and collectives in portions of the country that weren’t controlled by the dictator Franco (prior to Franco’s victory)?

      And if you’re interested in local labor history and the Red Scare of the mid-1930s, I would recommend checking out the display at the Center for Sacramento History: (http://www.centerforsacramentohistory.org) they recently opened a photo and artifact display on the 1935 Sacramento “Criminal Syndicalism” trial, when 18 union members were arrested and prosecuted for belonging to the Communist Party.

    • Andrew McLeod

      It’s also true that Sacto has had its rough patches. Don’t forget the squatter riots. If memory serves, around 1850 the city tried to clear folks from approximately the same site as our recent tent city, and by the time it was all over several city officials were dead and wounded. Sacramento has bounced back from all sorts of things, but so did the Rust Belt…until it didn’t. Our previous troubles came during times when there was a lot of economic growth, a lot fewer people in California, and a lot less environmental pressure from drought. As they say in the financial services industry, “past performance is not necessarily indicative of future results.”

      There has been a lot of anarchist-inspired cooperation in Spain, but that was primarily centered around Barcelona. “Homage to Catalonia” is George Orwell’s first person account of fighting (and almost dying) in one of the militias, and well worth a read.

      Mondragon is primarily rooted in Catholic Social Thought. The Church was mostly allied with Franco, but the Basque Country was the main exception. The co-ops grew out of the ministry of a priest named Jose Maria Arizmendiarrieta (who was nearly executed by Franco after the civil war). Mondragon has also been influenced by Basque nationalists, anarchists, and labor activists, but the philosophy known as distributism is probably the closest match.

      There is another Catholic cooperative movement modeled after Mondragon in the Valencia area of Spain, and Catholic communities have also played key roles in Italy, Nova Scotia, Quebec, the US Midwest and southwestern Louisiana (the latter connected to the Civil Rights Movement. Anyone who wants more on faith-based cooperation can start by looking at http://www.holycoop.wordpress.com.

  • Thank you so much for this article–and coverage of the great potential of cooperatives. I’ve been involved with cooperatives, mostly food coop’s, for a number of years. Now, with the recent announcement that a local paperboard plant, Smurfit-Stone Container, will be closing and laying off 417 workers, I am thinking that it could provide an opening for all those workers and the loggers and haulers, etc. so dependent upon the mill to become owners of the plant and keep the control and profits right here in western montana! Thanks for the inspiration!

  • Andrew McLeod

    cpmciver, good luck with your paperboard plant.

    If you haven’t already contacted them, the Montana Co-op Development Center can provide some help: http://mcdc.coop/ The Ohio Employee Ownership Center has a lot of information about conversions to ESOPs and cooperatives. http://www.oeockent.org

  • As a worker-owner at a popular IT Firm in San Francisco, I find it very heartening to read this article. In my opinion, there aren’t enough worker-coops outside of the Bay Area. I actually did hear of a worker-owned solar installation company based in sacramento, called “Go Solar” though. Anyways it is great to hear such positive comments!

    yochai
    Founder
    TechCollective