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.