ATC1811017: Report of the Portfolio Committee on Small Business Development on its Study Tour to Spain To Learn on Cooperatives Development Experience from 15 - 22 September 2018, dated 17 October 2018
REPORT OF THE PORTFOLIO COMMITTEE ON SMALL BUSINESS DEVELOPMENT ON ITS STUDY TOUR TO SPAIN TO LEARN ON COOPERATIVES DEVELOPMENT EXPERIENCE FROM 15 - 22 SEPTEMBER 2018, DATED 17 OCTOBER 2018
The Portfolio Committee on Small Business Development (“the Portfolio Committee”) having embarked on an international study visit to Spain from 15 - 22 September 2018, reports as follows: -
The Portfolio Committee on Small Business Development travelled to Basque Country and Madrid in Spain during 15 - 22 September 2018 in partial fulfilment of its strategic objectives relevant to the international study tours, capacity building, training, development, legislative and policy construction as well as sharpening oversight over the executive. The study tour was aimed at providing members of the Portfolio Committee and staff an international viewpoint on cooperatives development, to obtain an in-depth knowledge of the sector, to learn how Spain and Basque Country experiences could provide an experimental model for South Africa to emulate in order to amplify its efforts to grow the cooperatives movement, to observe and acquire basic knowledge of a functioning cooperative industry, and to get insight of the past and present legislation and regulatory practices that have effectively generated an ecosystem that allows Spain’s cooperatives sector to thrive.
Furthermore, the study tour objectives were also aimed at enhancing knowledge and adaptation of good practices for improved awareness at national level concerning practical measures desirable to create much-needed enabling environment for cooperatives. It was essentially a benchmarking exercise to gauge the level of Spain’s cooperatives sector contribution to the gross domestic product (GDP) of the country, employment creation, export earnings, new products line development, research and development to name the few compared with that of South Africa. This is to ensure that best practices are assimilated or replicated into the South Africa’s cooperatives development approach. After all, the world’s largest contemporary workers cooperative, Mondragon Corporation, is also found in Spain. It is an organisation that is owned and controlled by its workers, democratically, from bottom up.
Most developed countries in Europe (Germany, Italy, France, Netherlands and Spain) and America (Canada and United States) have embraced cooperatives sector as an instrument and strategy to grow their economies. The cooperatives sector growth trend may also be observed in territories collectively termed ‘Asian Tigers’ (Hong Kong, Singapore, South Korea and Taiwan). For instance, during its visit to Mondragon Corporation the Portfolio Committee learnt that relations with South Korea have not only been formalised but at a stage where there is implementation. The sector’s contribution to the GDP, percentage of revenue from exports and employment to these countries is enormous. This is contrary to South Africa’s scenario where the sector has registered insignificant success despite the existence of a Department enacted solely to cultivate industrious cooperatives.
According to the Integrated Strategy on the Development and Promotion of Cooperatives (39: 2012), it stipulated that only 2 644 of the 22 030 cooperatives could be verified as operational, representing a sheer 12 percent survival rate, while indicating a national mortality rate of 88 percent. Provincially, the report further painted a bleak picture where in Northern Cape for instance, the mortality rate was astronomically high at 97 percent, followed by the Eastern Cape and Western Cape at 93 percent and the Free State province at 92 percent. Since 2012, not much has changed, the figures still looks pretty much the same if not worse.
Therefore, the Portfolio Committee saw it appropriate to visit Spain where agricultural and worker-owned cooperatives play a vital role, not only in social aspects but also in the economic sphere. In fact, the Spanish Business Confederation of Social Economy (CEPES) estimates that over a million farmers belong to one of the 4 000 existing cooperatives. This means that most farm owners are members of a cooperative. The Committee interacted with various stakeholders including leadership of Mondragon Corporation where more than 266 cooperative enterprises are owned by employees, the Portfolio Committee further networked with Government Ministry, Basque Parliament, Basque Trade and Investment Agency as well as the Spanish Business Confederation of Social Economy. The Committee also had an opportunity to conduct site observations at the Mondragon University and Otalora Training Centre to observe the entire training process that an aspiring member is exposed to before being considered a full-fledged member of a cooperative, and how such progression and continuous learning are integrated into the syllabi of the Mondragon University.
The Portfolio Committee had long resolved to visit two countries, one in Africa and one in Europe, with a view to learning how their cooperative models differ from ours and what are the areas of strength that we can replicate here at home. Based on numerous oversights and engagements with various representatives from the sector, a decision was taken to visit Kenya and Spain during 2016/17 financial year. The choice of Kenya and Spain was largely due to their models being bottom-up, in other words, community rather than government driven. However, owing to statewide budget reprioritisation and consolidation, a decision was then taken to defer all study tours to the current financial year. The travel approval was therefore subjected to few conditionalities i.e. that only one country can be visited, by a maximum of seven (7) members and travel period to not exceed five (5) days excluding travel days.
In preparation for the study tour, the Portfolio Committee had interacted with the cooperatives sector which fundamentally and ultimately informed the choice of Spain and the approach towards the study tour. The Portfolio Committee had for example had engagements with South African National Apex Cooperative Organisation (SANACO), cooperatives in various provinces during the Portfolio Committee oversight visits, financial sector workshop in 2015 which had also been attended by Mr. Oskar Goitia, President of the Mondragon International. The visit to Spain was consequently a natural choice considering, for example, Mr. Goitia’s commitment on behalf of Mondragon Corporation to assist South Africa where possible towards the development of a sound and radical cooperatives ecosystem.
2.1 Rationale for the Study Tour
The choice of Spain was interesting to the Portfolio Committee for a number of reasons relative to its constitutional mandate that is to legislate and oversee the executive. Firstly, Spain, as a country, is part of the European Union (EU), a treaty which by association opens up the potential for sovereignty transfer. Relations between Spain and South Africa, and with extension, South African Customs Union (SACU) are regulated by Trade, Development and Cooperation Agreement (TDCA) concluded between South Africa (Botswana, Namibia, Lesotho and Swaziland) and the European Union in 1999.
Secondly, Spain is not just one nation with divergent traits but rather a nation of nations, which however, has recognised the plurinational and plurilinguistic character of the State. Hence, while Spain is a unitary state, it has nonetheless adopted a model of territorial administration, known as the “State of Autonomies”, a system that shares some elements with federalism. This is undoubtedly one of the fortes that autonomous Basque Country, a region where Mondragon Corporation is domiciled, has strategically utilised and benefited from i.e. policy formulation is easy, decision-making is bottom-up as opposed to South Africa where government is intrusive and dogmatic to the needs of the cooperatives sector, policymaking is fast, effective, less onerous and government intervention or role seem limited to creating a favorable environment and tackling market failures.
Thirdly, Spain has a vibrant social economy that has proved resilience during historical economic headwinds. The term “social economy” is used to mean a set of organisations that share specific operational features, such as solidarity, mutual assistance, open membership, democratic management and people-based decision-making and distribution of surpluses, which depend on the activity carried out by each person irrespective of the capital invested.
Lastly and most importantly, the Mondragon Corporation epitomises the prime model of how cooperative entrepreneurship based on community participation and democratic structure can be utilised in South Africa to extricate itself of social ills, poverty, unemployment, and bring about a decent economic growth and development. In addition, it is important to indicate that it is not likely to comprehend Mondragon social entrepreneurship without fully appreciating the cohesiveness and collective tradition of Basque culture and folklore of humankind, morality, responsibility, education and cooperative democracy to name the few. Interestingly, such values, norms, principles and standards upon which the Mondragon model is fashioned and anchored, have salient semblance with our own essence of ubuntu, a philosophy that espouses success of the group above that of the individual.
2.2 Study Tour Objectives
The primary objectives of the study visit were to:-
- Provide members of the Portfolio Committee an opportunity to study Spanish model of cooperatives development including but not limited to the formation of cooperative enterprises, importance of training before registration, governance, operational and financing models;
- Acquire better understanding of the Spain, Basque country, Madrid and Mondragon Cooperative ecosystem including types of cooperative enterprises that can be formed;
- Obtain knowledge about legislative prescripts, the current policies, acts and strategies that has helped shaped Spain burgeoning cooperatives movement;
- Help members of the Portfolio Committee draw lessons concerning the nature and types of cooperatives i.e. housing, financial, worker and agricultural that can be formed and;
- How cooperative enterprises may cushion workers against cyclical retrenchments wherein struggling enterprises avoid layoffs by transferring affected workers to cooperative enterprises that are doing well, a methodology that Mondragon Corporation has more than five (5) decades used meritoriously;
- Provide participants with the opportunity to get to know and compare with own experience, the strategies and practices of developing pulsating cooperatives movement;
- To learn techniques of product and service selection by cooperatives which should ideally be informed by comparative and competitive advantage of each cooperative, exportability, profitability and productivity;
- Develop new contacts and explore opportunities of cooperation with the Basque government and Mondragon Corporation in particular;
- Jointly and collaboratively develop an institutional adaptation to inculcate cooperative culture into social and community development and;
2.3 Organisation of the Study Visit
The visit was a five (5) day study tour held from Monday 17 to Friday 21 September 2018 (excluding travel days) in Basque and Madrid, Spain. The Portfolio Committee interacted with a number of individuals, stakeholders, institutions and representative from Basque Parliament. The first leg of the visit as illustrated below, was successfully facilitated and hosted by leadership from Mondragon Corporation. During the second leg of the visit in Madrid, the Portfolio Committee visited the Spanish Business Confederation of Social Economy (CEPES), a national reference organisation created in 1992 representing interest of the social economy in Spain. The Portfolio Committee also paid a courtesy visit to the South African House in Madrid where His Excellency Ambassador Smuts Ngonyama cordially received it.
As host country, the South African embassy was responsible for the organisation of the study tour itinerary in Spain. They organised the reservations for the hotels and ground transport and recommended appropriate accommodation. The number of members permitted to travel was limited to seven (7), in line with the principle of proportional representation. The Portfolio Committee itinerary illustrating how the visit had been organised is attached herewith the report as Annexure A.
2.4 Composition of the Delegation
As alluded to hereinabove number of members was limited to seven (7). The delegation comprised of members of the Portfolio Committee on Small Business Development, Parliamentary Officials, and officials from the Department of Small Business Development as follows:-
2.4.1 Members of the Portfolio Committee on Small Business Development
Ms NR Bhengu MP (ANC) Leader of the delegation
Mr N Capa MP (ANC)
Mr X Mabasa MP (ANC)
Mr SD Bekwa MP (ANC)
Mr RWT Chance MP (DA)
Mr TE Mulaudzi MP (EFF)
Mr SC Mncwabe MP (NFP)
2.4.2 Parliamentary Officials
Mr NK Kunene Committee Secretary
Mr S Gumede Committee Content Advisor
Ms N Mlambo Assistant to the Chairperson
2.4.3 Department of Small Business Development Officials
Ms S Hlapolosa Special Advisor to the Minister
Mr N Manyelo Parliamentary Liaison Officer
Mr T Rapopo Director
2.5 Terms of Reference
In accordance to the Terms of Reference (TOR) and previous study tour practice, the study visit focused on the following areas:-
- Prearranged meetings with senior leadership of Mondragon Corporation;
- Visit to Mondragon University and other academic institutions;
- Arranged visits and working sessions with local government agencies and administrative bodies such as Basque Government, Ministry of Economic Development and Basque Trade and Investment Agency;
- Visit to ULMA Packaging, a leading cooperative in food processing and packaging;
- Visit to FAGOR ARRASATE: Leading cooperative in processing of industrial and capital goods in steel processing;
- To learn and compare experiences on how the economic development plans for both Spain and autonomous Basque country and how legislative processes cascade from European Union, Spain government, autonomous Basque Country to Mondragon Corporation.
For ease of reference, the following section (Overview of Meetings) provide summary for all the meetings and visits held by the Portfolio Committee from Monday 17 to Friday 22 September 2018, in other words, both legs of the trip, Basque and Madrid. This is followed by consolidated Portfolio Committee observations and recommendations.
OVERVIEW OF MEETINGS
The group undertook a series of visits to a number of different organisations and cooperative enterprises over the course of the week, brief details of each visit along with the insights of the participants is outlined in the following section.
DAY ONE - MONDAY, 17 SEPTEMBER
3. Visit to Mondragon Corporation Headquarters and Otalora
The first day of the visit was dedicated to introductions, meetings and presentations from Mondragon leadership. Upon arriving at Gipuzkoa, Mondragon headquarters, the Portfolio Committee was warmly welcomed by the President of Mondragon International Mr. Oskar Goitia. Joining the introductory part of the meeting were Messr. Inigo Albizuri, Ander Etxebarria, Carlos Barandiaran and Kepa Bergara. The presentations and engagements covered various features of the Mondragon Corporation from ancestries or foundations, brief background on Spain and the meaning of autonomous territories, Basque Country and the region of Mondragon, cooperative experience, governance, financing, cooperative creation to management consulting.
In line with the presentations done, this section will cover much broader issues than what was presented during day one i.e. preliminary remarks by the Chairperson and leader of the Portfolio Committee delegation, overview of Mondragon Corporation, history and modern day Mondragon Corporation, sectors of interest to the group, key doctrines or philosophies that are considered or believed to have sustained the group till today and lastly, visit to Otalora, one of the group’s training centres located at Aretxabaleta, Gipuzkoa.
3.1 Introductory Remarks by Chairperson of the Portfolio Committee
The Chairperson of the Portfolio Committee Ms. Ruth Bhengu, made introductory remarks covering a wide spectrum of social and economic challenges presently bedevilling South Africa and issues currently on the public domain i.e. youth unemployment, overview of the cooperative sector in South Africa, perceived role of the sector which is seen as a poverty alleviation intervention, government bureaucracy and the fragmented nature of support given to cooperatives. South Africa appears to be struggling to raise its growth rate beyond the five (5) percent mark as forecasted in the National Development Plan (NDP). The Chairperson’s introduction offered high-level outline of unemployment rate in South Africa averaging 27 percent.
According to the recent figures from the Quarterly Employment Statistics (QES) survey, released by Statistics South Africa (STATSSA), the total number of jobs reported in the second quarter of 2018 showed a reduction of 69 000, bringing the total number of persons employed in the formal non-agricultural sector of South Africa to 9 748 000. Over half of South Africans live below the upper-bound poverty line that is according to STASSA recent surveys. Exacerbating the condition, is the country’s economy that slipped into recession during the second quarter of 2018, shrinking by 0.7 percent, first recession since 2008/2009 triggered by global financial crisis. Whereas the World Bank (2018) rank South Africa as the most unequal country in the world.
3.2 Problem Statement
The triple challenge of poverty, unemployment and high inequality remain the uppermost priorities of the government since 1994. To tackle these challenges, the democratic government implemented various policies and programmes aimed at job creation, wealth redistribution, and poverty alleviation. Cooperatives development was identified as one of the significant instrument at the government disposal to tackling these and other transformational imperatives. For instance, the Cooperative Development Policy for South Africa of 2004 reiterated the call for economic transformation. The ANC-led government’s promotion and support of cooperatives was thus premised on the conviction that cooperatives are strategically placed to create income-generating opportunities for communities in rural areas far removed from the formal economy. Nevertheless, cooperatives mortality rate remains at an average of 88 percent owing to a number of weaknesses in the government’s approach to cooperatives development. There is a general lack of appreciation and narrow perspective of cooperatives with respect to the role they are supposed to play towards socio-economic development of the country.
Contrary to Spain and other emerging nations like Kenya for example, South Africa’s establishment of Workers Owned Enterprises and Community Owned Enterprises using the concept of cooperatives and instilling principles and values of solidarity at community level is below average. The top-down government driven and grant-based approach towards the sector’s development has not paid any dividends. Instead, it has deepened and enticed rent-seeking enterprises. Accordingly, success is measured based on the number of cooperatives funded vis-à-vis social and economic impacts. In addition, disjointed support services and uncontrolled involvement of all government departments in development of cooperatives, without a national strategy spelling out complimentary roles played by each departments, results in duplication of activities and create confusion at community level. The insinuation in the Department of Small Business Development that small, micro and medium enterprises (capitalists in character and form) and cooperative enterprises (socialists in character and form) are the same and therefore require identical type of support services and legislative framework confounds the role of the Department and implementation.
3.3 Overview of Mondragon Corporation
The Mondragon Corporation is a conglomerate and federation of worker cooperatives based in the Basque region of Spain.It is a community of economically highly successful worker-owned, worker-controlled production and consumption cooperatives centred around Mondragon, a town in the Basque region in Northern Spain, and now spreading throughout the Basque province and beyond. Mondragon Corporation is based on a firm commitment to solidarity and uses democratic methods for organisation and management, fosters participation and the involvement of people in the management, profits and ownership of their cooperatives, developing a shared project which unites social, business and personal progress, fosters training and innovation through the development of human and technological skills.
3.4 Brief History of Mondragon Corporation
A Jesuit priest named Don Jose Maria Arizmendiarreta and five young men established the Mondragon Cooperative in 1954. Upon his ordination, he was sent to the Mondragon region to minister to the people. He arrived there in 1941 where he discovered that unemployment was rife, education was of inferior quality and there was no vision for the future among the residents. The assets of the region were few but important. There were industrious people who knew how to work hard, there was a sense of solidarity based on being treated badly by the Spanish government for hundreds of years, and a strong social structure. Don Jose began the construction of his paradigm shift by starting an industrial apprentice school in the late 1940s. He also taught classes on ethics to young men who planned to start businesses someday. Don Jose had read the papal edict that said that the work should he considered part of spiritual development, and he was deeply disturbed by the number of his parishioners who, because of their lack of a job, could not participate in that aspect of their own growth.
In 1955, he began to take action to change the future of Mondragon. He invited five young men who had been in his business classes to go with him to raise money, in order to buy a business and bring it to Mondragon. They put out the word that they were looking for loans. They had no business plan, they did not know what they were going to buy or what they would produce. Yet on the strength of their reputations, plus their own personal financial commitment to the project, they raised $361,600. With the money in hand, the five went shopping and purchased a small manufacturing company that made Aladdin kerosene heaters. One year after they purchased it, they moved it to Mondragon and the cooperative was born. They named it ULGOR after the first initials of the five principals’ names, viz., Luis Usatorre, Jesus Larranaga, Alfonso Gorronogoitia, Jose Maria Ormaechea and Jarvia Ortubay. When they asked Don Jose what they were going to do next, he answered, “we will build the road as we travel”. Today, more than six decades later, the magical story of Mondragon is still being written.
3.5 Contemporary Mondragon Corporation
In 1956, the company had 24 employees. In 1958, it had 149 employees and in 1990, the Mondragon Cooperative complex, of which ULGOR was the first of many connected cooperatives, had 21 241 member employees. The Mondragon Corporation is today, the largest business group in Basque Country and the seventh biggest in Spain. In 2016, the Group’s total revenue totaled 12 billion euros, staff complement of 80 800 and 266 companies and cooperatives in the Mondragon Group. Globally, Mondragon has more than 12 000 people working abroad in seven (7) countries and more than 140 production subsidiaries. The economic and cooperatives literature on Mondragon Corporation seem to attribute its success to a number of reasons, such as, high levels of profit reinvestment, a central banking company for all the cooperatives called Caja Laboral Kutxa, open intellectual debate, social security measures and democratic structures to name the few.
For instance, the Portfolio Committee heard during its interactions with Mondragon leadership that democratic basis of the organisation starts with the general assembly, in which members have the right and obligation to vote. The general assembly elects the governing council made up of workers, who employ a manager similar to a CEO of a private enterprise. The manager may participate in the governing council but has no vote. There are also management councils, made up of department heads to organise day to day running of the business, and a social council, that deals with health and safety, social work activities and social security.
Furthermore, there are a number of measures for dealing with adverse macroeconomic conditions, such as the ones experienced during the global financial crisis in 2008/2009, by lowering wages, reducing capital reinvestment, or a combination of the two. Workers who received lower pay were also able to receive assistance from the Lagun-Aro, or a centralised employment insurance fund within the Mondragon Corporation, which was created in 1959. Internal distributions between cooperatives also help to keep a struggling cooperative afloat and to maintain a sense of solidarity between cooperatives. Both from a social and economic perspective, Mondragon model has been very successful. The Corporation has concentration in four (4) sectors and its local and international subsidiaries, companies and cooperatives constituting the group, operate in just these four (4) main sectors, namely, financial, industrial, distribution and knowledge.
3.5.1 Financial (Banking and Social Welfare)
Caja Laboral Kutxa and Lagun Aro are two flagship companies comprising three (3) distinct portfolios, which are banking, insurance and social security. Caja Laboral Kutxa, a cooperative banking project, serves 1.2 million clients. Currently, it is one of the strongest financial institutions in Spain. It consist of 335 branches in a large number of Spanish cities. The cooperative bank provides financial support to small and medium enterprises (SME) in industry, cooperatives, the agri-food sector and entrepreneurs. It also provides banking services and facilities for its members.
Lagun Aro on one hand is a mutual insurance company. It was created with the objective of resolving the problem that arose when the government of Spain refused to allow cooperative members to qualify for social security benefits, maintaining that they were owners of the businesses in which they were employed. Today, Lagun Aro is helping some cooperatives which are trying to adjust their workforce to the new business challenges. This means, for example, that in certain cooperatives that are struggling to absorb a certain percentage of workforce, Lagun Aro provides some form of relief until such time that they are redeployed to other cooperatives. This measure can be temporary or definitive, depending on whether the situation of their former cooperative is transitory or permanent. If the member cannot be deployed to other cooperative, depending on the age of the member, Lagun Aro will pays him or her unemployment benefit or a retirement pension.
The industrial area includes a wide variety of facilities i.e. machine tool, components for automotive, aluminium steel, industrial automation, home appliances, industrial systems, dumps and tools, components, building, vertical transportation, engineering and service teams. One of the main characteristics of Mondragon cooperatives in the industrial sector is their strong global presence. They have 140 production subsidiaries abroad, and their international sales account for more than 70 percent of total sales. The division has a special collaboration with Mondragon University on research and development. Fagor Arrasate and Ulma Packaging are two world renowned cooperatives visited by the Portfolio Committee.
Group Eroski is one of the leading retail groups in Spain, its network consist of more than 1800 outlets. It operates mainly in the food and retail industry, but also has specialty stores in such sectors as beauty, sports, fuel, optics and travel. At the core of the group, there is Eroski cooperative, owned by workers and consumer members, who are part of its governing body.
People’s training and education have always been part of the cooperative experience in Mondragon. In 1997, the Corporation established Mondragon University. Currently, the University enrolment is just over 4 200 with nine (9) satellite campuses. The University offers undergraduate and postgraduate qualifications in the fields of engineering, education, communications, business management, entrepreneurship and food sciences.
3.6 Key Pillars Underpinning Success of the Mondragon Corporation
Based on the literature survey and key areas of focus that Mondragon leadership presented to the Portfolio Committee during day one, there are ten (10) guiding principles worthy of noting that have resulted in Mondragon’s incredible record of success, job creation and community continuity. It is nonetheless important to accentuate the fact that the Basque country itself has special conditions (autonomy) and value system that helped Mondragon flourish.
Mondragon Corporation attaches significant import to education. During the conceptualisation and inception of Mondragon, Don Jose had started a technical school back in 1940s which its curricula evolved along with the cooperatives. The needs of the growing cooperatives were always connected to the curriculum of the school. Many of the students also worked at the cooperatives, so they could see the direct connection between their preparation and their job. This was very much witnessed by the Portfolio Committee. The Mondragon now boasts of a University considered one of the best in Europe. The organisation declares that in order to implement the aforementioned principles it is essential to dedicate sufficient human and economic resources to different aspects of education:
- Co-operative, for all members appointed to management bodies;
- Professional, especially for members appointed to management bodies and;
- Young people, in general, to promote the emergence of men and women co-operators, capable of consolidating and developing the Experience.
3.6.2 Democratic Organisation/Power Structure
Another significant value that strengthens Mondragon success is that of democracy. There is a putative principle that if it is a cooperative, therefore, every worker has a vote. The workers elect the board of directors and the board of directors hire the managers. This has a positive effect on the workers, because the people they elect are the people who hire their supervisors. If they do not like what the management is doing, they can always vote out the board. Part of the democratic structure is a worker's congress where everyone has a vote. The Mondragon Co-operative experience therefore declares all its worker members to be equal in their rights to knowledge, property and self-development, an equality that implies a democratic enterprise structure based on:
- The sovereignty of the General Meeting, composed of all the members, in which this sovereignty is exercised on the basis of “one person, one vote”;
- The democratic election of governing bodies, and in particular, the Board of Directors, which is accountable for its actions to the General Meeting;
- Collaboration with the management bodies designated to operate the company, by delegation of the membership as a whole. These bodies shall be endowed with sufficient powers to be able to carry out their tasks effectively for the common good.
3.6.3 Sovereignty of Labour
These being worker cooperatives, the Mondragon model considers labour to be the principal force in the transformation of nature, of society and of human beings themselves, the Mondragon model:
- Renounces the systematic contracting of salaried employees [to double check if this statement is factual];
- Grants Labour full sovereignty in the organisation of the cooperative enterprise;
- Considers that labour deserves to be the first and foremost recipient of the wealth produced by the enterprise;
- Manifests its willingness to extend job opportunities to all members of society;
3.6.4 Subordinated Nature of Capital
Unlike typical commercial settings where chief executive officers are paid thousands time more than their lowest paid employees or shareholders prioritises dividends at the expense of long term investments, the Mondragon system considers capital to be an instrument subordinated to labour, which is necessary for business development, and therefore merits a remuneration that is:
- Fair, in relation to the effort involved in its accumulation;
- Adequate, to permit the assignment of the necessary resources;
- Limited in amount, through the corresponding regulations;
- An assurance of equilibrium in the allocation to labour and to capital with respect to the earnings generated.
3.6.5 Financial Structure
The financial structure of the Mondragon has no parallel in the world. First, all workers must put some of their own money into the cooperative they are part of. The money accumulates interest but can only be removed upon retirement. Such a system guarantees that everyone has something to lose if the enterprise fails. It also carries with it a reward at retirement if the enterprise is successful. Second, a bank, Laboral Kutxa, was created within the cooperative structure that serves the cooperative and is itself a cooperative. It has a very clear mission, which is to fund new jobs so that all people who wish to work in the Mondragon area able to do so. This mission is even more important than making the best return on investment, thus violating the prevailing paradigm of banking. Simply put, the Mondragon cooperative bank risks its capital to protect the job base of the community. All workers and the Mondragon cooperatives must use this bank.
It holds the savings and retirement funds of the workers and processes all the funds flowing through all the Mondragon enterprises. The Mondragon bank perceives itself not just as a guardian of the money it uses, but also, as a catalyst for creating new business within the Mondragon Cooperative complex structure. It always has the welcome mat out for anyone who wishes to create more jobs. Because of this attitude and the great skills Mondragon has developed in nurturing start-ups, its entrepreneurial success rate has been 80 percent. That is the failure rate for the rest of the world. In exchange for this monopoly of money, it provides services no other bank in the world provides to its members such as:
- Strategic information and guidance for both old and new businesses;
- Up-to-date marketing reports that suggest new products and services that are needed in the region and throughout Europe;
- A staff of older executives ready to mentor new cooperatives;
- A willingness to fund start-ups to create new jobs in the area
3.6.6 Open Admission
The Portfolio Committee was told that Mondragon membership is open to all men and women who accept the basic principle principles and prove themselves professionally suitable for the jobs that may be available. Therefore, there shall be no discrimination whatsoever on religious, political, racial or gender grounds in the attainment of membership status. Open admission shall be the principle governing all actions and interpersonal relations related to cooperative development.
3.6.7 Participation in Management
The Mondragon is also championing the belief that the democratic nature of a cooperative is not limited to the membership side, but also involves the progressive development of self-management and, therefore, the participation of members in business management, which, in turn, requires:
- The development of suitable mechanisms and channels for participation;
- Transparent information concerning the performance of the basic management variables of the cooperative;
- The use of methods of consultation and negotiation with worker-members and their social representatives in those economic, organisational and labour decisions that concern or affect them;
- The systematic application of social and professional training plans for members;
- The establishment of internal promotion as the basic means for covering jobs involving greater professional responsibility.
3.6.8 Wage Solidarity
The Portfolio Committee learnt that Mondragon is not a sanctuary for rich people. The organisation declares sufficient payment based on solidarity to be a basic principle of its management, based on a permanent vocation for collective social promotion, expressed in the following terms:
- Sufficient, in accordance with the real possibilities of the co-operative;
- Solidarity, brought to fruition:
- Internally, through the creation of a remuneration framework based on solidarity;
- Externally, based on the criterion that internal remuneration should be in line with that of salaried employees in the same sector and, where appropriate, in the same geographical area that the co-operative operates in, unless it is manifestly insufficient;
- At the Mondragon level, with the existence of a labour framework based on solidarity in terms of both payment and annual work hours for all the co-operatives in the corporation.
Moving of one employee with rare or required competency from one cooperative to the other is not just a theory or concept in Mondragon but a culture that is being practised. Mondragon considers that, as a specific application of solidarity and a requirement for business efficiency, the principle of co-operation among co-operatives should be apparent:
- Among co-operatives on an individual basis, through the setting up of Groupings aimed at creating an homogeneous system of work rules and regulations, including the pooling of profits, the regulation of transfers of worker-members and the search for potential synergies deriving from their combined size;
- Among Groupings, by means of the setting up and democratic management, for the common good, of superstructure entities and bodies;
- Between the Mondragon and other Basque co-operative organisations, in order to promote the Basque Co-operative Movement;
- With other co-operative movements in Spain, Europe and the rest of the world, by reaching agreements and establishing joint bodies aimed at promoting joint development.
3.6.10 Social Transformation
The Mondragon declares its commitment to social transformation in solidarity with that of other countries, through its activities in the Basque region in a process of expansion in order to collaborate in its economic and social reconstruction and the building of a freer, fairer and more supportive Basque society, by means of:
- he reinvestment of the majority of the net surplus obtained, with a significant proportion earmarked for funds of a community nature, in order to create new co-operative jobs;
- Support for community development initiatives, by means of the application of the Education and Co-operative Promotion Fund;
- A social security policy in keeping with the co-operative system, based on solidarity and responsibility;
- Co-operation with other Basque institutions of an economic and social nature, especially those promoted by the Basque working class;
- Collaboration to revitalise Basque as the national language and, in general, the characteristic elements of Basque culture.
3.7 Visit to the Group’s Training Centre, Otalora
After working lunch at Olandixo Corporate restaurant, the Portfolio Committee headed to Otalora, the Mondragon Management and Cooperative Development Centre, which began to provide training courses in 1984. The rationale behind the creation of the training centre was to train recent graduates with no work experience for management posts at the cooperatives. It therefore consisted of experimental technical training given at a fast pace to people with degree-level theoretical knowledge but with no previous experience in business management. There was also another initial programme geared to members of the Boards of Directors, to help provide them with suitable training.
Later the programme was extended to include other areas: Cooperative Education, long-term courses leading to a Master’s Degree in Cooperative Enterprise Management and, in general, all the training that the cooperatives associated with Caja Laboral and today forming part of Mondragon required at the time and planned for their management authorities, governing bodies and members in general. Today, the Centre offers a wide range of courses, grouped into five major areas: Cooperative Education, Management Development, Cultural Development, Leadership and Teamwork and Dissemination of the Cooperative Experience.
DAY TWO - TUESDAY, 18 SEPTEMBER
4. Visit to Mondragon University, Ulma Packaging and Fagor Arrasate
4.1 Mondragon University
On Tuesday, the first meeting for the day was at the University of Mondragon, where the Portfolio Committee was received by Academic Vice Rector Mr. John Altuna. He took the Portfolio Committee through the foundations of the University i.e. rationale behind its formation, why and when it was formed, academic offerings, ownership and cooperation between the University and cooperatives in the group particularly on issues pertaining to Research and Development. “We are a cooperative university, which belongs to the Mondragon Corporation, with a clear human vocation and a commitment to our environment, our society and our time. Our teaching model involves a system of relationships which, with the educational system as the central theme, aims to involve the companies and institutions in the area, in order to guarantee social accessibility, the combination of work and study, the development of research and the provision of Continuing Education”, explained Mr. Altuna.
Earlier it was indicated that the first cooperative (ULGOR) did not get started until 1956, which is about 15 years after Father Arizmendiarrieta arrived in Mondragon in 1941. He spent a great deal of time focusing on building educational strategies, starting with a vocational school he founded, which later became the Professional Polytechnic School, and finally became the University of Mondragon. Contrasting Mondragon’s approach on education and training to South Africa’s context, there was a long period where their only focus was the professional education of the people of Mondragon. Still today, education is at the core of their basic cooperative principles –similar to the idea of a “learning organisation”. Mondragon University was created in 1997 and officially recognised by Law 4/1997 of 30 May. It has four (4) faculties, namely, Engineering, Business Studies, Gastronomy and Humanities and Education Science. The University is an integral part of the Mondragon Corporation culture. According to Mr. Altuna, “one of the main characteristics of Mondragon University is our close and permanent relationship with the working world, enabling us to outline our educational offer by adapting it to the needs of cooperatives and organisations”.
He went on to indicate that “our relationship with Mondragon Corporation – which contains 266 companies and institutions and more than 80 800 employees – along with the agreements we have with numerous companies and organisations from various sectors, enables our students to come into direct contact with the working world right from the start of their studies”. This relationship results in a whole series of activities such as work-study combinations where students have the possibility of combining their studies with part-time work, which, besides complementing their academic education, enables them to pay for their studies. Also, work placements, allows students to carry out work placements at companies and educational centres to complement their education. The meeting ended at 12:30 to allow the Portfolio Committee adequate time to travel to Onate for a working lunch.
4.2 Ulma Packaging [to quantify the scale, turnover and number of employees]
After working lunch at Zumeltzegi, Onate, the Portfolio Committee visited Ulma Packaging also in Gipuzkoa. Ulma Packaging is one of the Mondragon’s group industrial cooperatives that specialises in the design and production of packaging equipment and services. The Area Manager Mr. Aingeru Gallastegi received the Portfolio Committee and took it for a site/factory visit. What the Portfolio Committee was exposed to during this part of the visit was quite outstanding i.e. number of employees, magnitude and size of the factory, equipment and machinery, standard operating procedures, safety awareness, level of detail and professionalism among employees who are also owners of the factory. During the presentation and discussions with Mr Gallastegi, members of the Portfolio Committee learnt that actually, Ulma Packaging produce machines that make packaging for perishable food products. In other words, Ulma Packaging does not just produce packaging for these products — but it makes the machines that make the actual packaging. Several characteristics make this an appropriate and potentially sustainable niche for a global competitor coming from a high wage country.
First, in global terms, this is a relatively small niche market, less likely to attract a large number of competitors. Second, it is a highly technical niche, relatively insulated from competition from countries with large numbers of low-wage and unskilled workers. Third, each machine is customised to its specific application, thus requiring continued human intervention, providing continued employment. Finally, because these machines play a critical role in their customers’ production processes, they tend to compete on quality and reliability rather than price, and the customer necessity of maximising “up-time” (that is, the time in which the machines are running properly and production is not halted) creates an important after-market service opportunity. The plant that that the Portfolio Committee viewed was an assembly plant, which utilises components, materials and logistics provided by both cooperatives and non-cooperatives. Ulma Packaging has a subsidiary in Johannesburg, South Africa.
4.3 Fagor Arrasate
Last visit for the day was to a world-class facility also in Gipuzkoa. Marketing and Internationalisation Manager Mr. Baltasar Perez received the Portfolio Committee. Fagor Arrasate Cooperative is a founder member of the Mondragon Corporation. It is one of Europe’s largest industrial corporations, and its headquarters and main factories are located in Gipuzkoa, Mondragon. The visit included a factory walkabout and video presentation highlighting the history of the cooperative, its relationship with other cooperatives in the group especially the University and international footprints. The cooperative designs, manufactures, and supplies forming machine tools. It offers stamping systems and presses, including transfer presses, press lines, high speed press lines, press blanking lines, progressive die presses, servo press products, monoblock presses, try-out presses, die spotting presses, press hardening lines, and composites forming lines; and cutting lines and processing systems, such as cut-to-length, slitting, combined cutting, multi-blanking, inspection, press blanking, press feeding, trapezium, and other special lines, as well as banding, packaging, and wrapping lines. The company also offers processing lines and rolling mills, including tension-levelling lines
Fagor also has a plant in China, near Shanghai, and a dozen establishments worldwide to guarantee top-level service and personal attention to customers, particularly in the USA, Germany, India, Russia, Brazil, Mexico and China. It is a world leader in the design and manufacture of mechanical and hydraulic presses, complete stamping systems, transfer presses, robotised press lines, press hardening, forging, Cut-to-Length, Slitting, Combi and multi-blanking lines; Processing lines as pickling lines, skin passes, reversible mills, painting, galvanizing or tension levelling lines; special metal part forming systems, strip roll forming, flexible roll forming, rotor/stator cutting equipment, dies and many other types of equipment, making Fagor the metal forming manufacturer with the world’s largest product portfolio.
DAY THREE - WEDNESDAY, 19 SEPTEMBER
5. Visit to Basque Government, Ministry for Industry Economic Development and Basque Trade Investment Agency
5.1 Basque Government
The final and last day of the study tour in Basque country had been earmarked for an official visit to the Basque government. Upon arrival in Vitoria-Gasteiz, Foreign Affairs Secretary General Ms. Marian Elorza cordially received the Portfolio Committee. After introductions and exchange of pleasantries Ms. Elorza took the Portfolio Committee through a presentation describing, among others, origins of the Basque region and its people, the essence of autonomy in a unitary state, key figures and social economy. Most interestingly for the Portfolio Committee was the relationship between Spain and Basque government in as far as the law making and enactment is concerned, and perhaps, implications that comes with being in a political and economic union of 28 member states.
It is practically impossible to comprehend Basque political system without necessarily interrogating Spain’s quasi-federal model. The multi-level governance of Spain's devolution with its unique constitution of autonomies, seem to make Spain a de facto federation. However, it is called a unitary state and the Spanish constitution underlines this code, as it has the power to revoke the autonomous privileges of the autonomous territories. The Spanish model of regional administration is a political system which shares some elements with federalism. The autonomous communities have parliaments with legislative powers as well as their own governments and they possess a series of competencies particularly with regard to social policy, such as in the areas of health, taxation, education, culture, environment and certain transportation infrastructures. Basque government therefore is one of those autonomous communities visited by the Portfolio Committee.
5.1.1 Administrative Organisation in the Basque Country
Euskadi, the Country of the Basques has a surface area of 7 235 square kilometres, population of 2 171.886, 251 municipalities (equivalent of wards in South Africa) and GDP per capita of 31 851 euros. There are two official languages, Basque and Spanish. However, Euskadi has its own language and cultural history. On 7 October 1936, the first Basque Statute of Autonomy, which recovered the “Fueros” or historical rights was passed. The Statute of Autonomy defines all the competences of Euskadi and the Basque Parliament as the supreme representative body. In the financial and economic arena, Euskadi is recognised for its “Concerto” (Economic Agreement), which regulates those relations and is recognised by European institutions. Its application provides the Basque autonomous community with fiscal autonomy and the resources of a public treasury through tax collection.
The Statute of Basque Autonomy or Statute of Gernika, passed on 18 December 1979, is the basic institutional document that grants the Basque Country the capacity for self-government as a self-governing community. This legal framework, recognised in the Spanish Constitution and which originated in the historial Basque Regional Code of Laws, endorses its political and financial autonomy, as well as certain legislative and executive powers. The Parliament exercises legislative authority and controls the actions of the Government. Government, in turn, carries out executive and administrative functions, and reports to Parliament through the highest representative of Government and of the Self-Governing Community itself, the Lehendakari or Basque regional president.
5.1.2 Cooperative Legislation in the Basque Country
In Spain, cooperatives have an important specialities compared to traditional trading companies or “commercial societies”, such as public limited companies or limited companies. Therefore, most autonomous regions (“Autonomous Communities”) of Spain have their own specific regulations regarding cooperatives. One of these Laws is Law 4/1993, 24 June, Cooperatives of Basque Country. This law has undergone a series of modifications, first being in 2000, 2006 and 2008. This law only regulates the cooperative societies in the Basque region and was enacted after Spain joined the European Union. These same rules are applied to the cooperatives in the biggest Spanish cooperative group, Mondragon Corporation. In addition, they have been considered as a point of reference by other cooperative laws. In the Basque region, cooperatives are active participants in the law-making process for they are considered to be an effective solution to wealth generation and job creation. Therefore, the Basque legislation tries to promote and foster the setting up and the merging of cooperatives from the legal and the tax point of view. For instance:-
- Basque legislation for cooperatives differs from the legislation related to “commercial societies”. The main reason for that is Basque regulation tries to regulate the specialities of the cooperative societies and to respect the cooperative values and principles which are different from a capitalist or commercial enterprise;
- Basque cooperative regulation tries to promote and foster the setting up and the merging of cooperatives in order to maximise economies of scale;
- This special regulation allows the Basque cooperatives to take measures in order to face any adverse prevailing economic crisis that left Spain’s economy in tatters albeit with moderate to little effects on the Mondragon group.
5.2 Basque Government Ministry for Industry Economic Development and Basque Trade and Investment Agency
Last meeting of the Basque leg was hosted jointly by the Vice Minister for Economic Development and Competitiveness Mr. Javier Zarraonaindia and Director for Basque Trade and Investment Agency Ms. Ainhoa Ondarzabal in Bilbao. Basque Trade and Investment Agency is the business and regional development agency of the Basque Government. Its main goal is to support and promote Basque companies worldwide, as well as to attract foreign investment to the Basque Country. The Agency supports the Basque Government Department of Economic Development and Competitiveness in developing the Basque Country’s strategy for growth, internationalisation, entrepreneurship, innovation and technology. The engagement with Basque Economic Development and Basque Trade and Investment Agency was more of a courtesy meeting to give the Portfolio Committee a broad overview of the Basque country and Bilbao economy, and explore areas of future collaboration.
Located on the banks of the Nervión River, Bilbao is the capital of the Biscay province of the Basque country and has a recorded history dating back to the very beginning of the 14th century. Since that time it has been an important commercial centre, mainly based around the port and its associated exports. In the 20th century, the industrial revolution led Bilbao to become one of the biggest and most noteworthy manufacturing centres in the whole of Spain. But the economic tumult of the mid-20th century left much of the area derelict until the region underwent a period of urban transformation that culminated with the opening of the Guggenheim Museum in Bilbao in 1997.
Receipts from tourism income and burgeoning economy driven by innovation, technology and investment in human capital has seen the Basque country becoming one of the world’s leading nations in terms of the socioeconomic indices i.e. human development index (HDI). The Basque Country had an HDI of 0.916 in 2015, situating it between 12th and 13th place in the country rankings, while Spain was in the 27th position in the UN report with an HDI of 0.884. Basque Country´s GDP per capita was estimated at €30.009, higher than the European Union average of €25.700, while South Africa's GDP Per Capita reached 6.268 USD in December 2017. The Basque Country is one of the most important industrial concentrations in Spain. According to Instituto Nacional de Estadistica (INE: 2016), an equivalent of STATSSA, the regional gross geographic product (GGP) reached a staggering €69 million in 2016. Of interest to the Portfolio Committee was to learn that Mondragon constitutes in excess of 5 percent of the Basque economy GGP and the Basque government acknowledged the role of Mondragon in changing economic fortunes of the Basque country.
DAY FOUR - THURSDAY, 20 SEPTEMBER
6. Visit to Spanish Parliament and South African House
The meeting between the Portfolio Committee and representative from Foreign Affairs and Cooperation based in Spain Parliament, Madrid, had to be called off after it had emerged that there was a possibility of a miscommunication between South African Embassy and Spain’s Parliament. The Portfolio Committee had intended to pay homage to its equivalent in Spain. However, it appeared that the request for this meeting was erroneously sent to a wrong Portfolio Committee overseeing the Ministry of Foreign Affairs and Corporation instead of the Ministry of Economy and Enterprise.
The Portfolio Committee then paid a working visit to the South African house in Madrid where His Excellency Ambassador Smuts Ngonyama received it. The Ambassador made remarks specifically about the arrangements of the trip which made it difficult for the embassy to plan well. He further made reference that it took a lengthy period for the Portfolio Committee to visit Spain considering that the President of Mondragon International Mr. Oskar Goitia had been in South Africa somewhere in 2015. He was pleased that ultimately, the visit was taking and hopefully it would not be in vain. The Ambassador, having been part of the Trade and Industry Portfolio Committee in his previous deployment, demonstrated sound knowledge of South Africa’s co-operatives model weaknesses and the role that could potentially be played by Mondragon in tying together that gap.
DAY FIVE - FRIDAY, 21 SEPTEMBER
7. Visit to the Spanish Business Confederation of Social Economy
The very last meeting of the Portfolio Committee was a visit to the Spanish Business Confederation of Social Economy (CEPES) in Madrid. The organisation was formed in 1992 as a nationwide confederation whose inter-industry nature makes it the largest representative institution for social economy in Spain. It is a platform for institutional dialogue with the public authorities. As the organisation that brings together the different economic activities that exist under the concept of social economy, CEPES comprises 27 organisations. All of these organisations are national or regional confederations and specific business groups that represent the interests of cooperatives, employee-owned companies, mutual societies, social integration enterprises, special employment centres, fishermen’s guilds and associations in the disability industry, with more than 200 support structures at regional level.
In Spain, social economy enterprises are very advanced. According to the Spanish Confederation of Social Economy Enterprises, in 2016 there were 43 059 social economy entities, providing work for nearly 21.5 million [to check these figures, should be 2.2 million] people. CEPES exists as the single spokesperson that integrates and structures all confederate organisations. It defines itself as an economic and social stakeholder that acts on the market and that, through its activity, has an impact on society. It has its own legal standing and defends a business model that has its own specific values.
7.1 What is the Social Economy?
The term “Social Economy” is used to mean a set of organisations that share specific operational features, such as solidarity, mutual assistance, open membership, democratic management and people-based decision making and distribution of surpluses, which depend on the activity carried out by each person irrespective of the capital invested. The concept may be extended to identify companies and institutions that operates or incorporated under a wide variety of legal formats i.e. cooperatives, mutualities, associations, foundations, not-for profit, etc that govern their economic activities in accordance with certain principles that distinguish them from capital or private companies:
- Importance is given to humanity and to social goals over capital i.e. they are people companies;
- Democratic control by the people making up these companies;
- Conciliation of the interests of their members, users and/or the general interests of their members and beneficiaries;
- They are companies that defend and implement the principles of solidarity and social responsibility;
- These companies are characterised by their management independence and their separation from the public authorities;
- They are companies in which the surpluses are allocated to the social purpose through distribution or reinvestment in line with the wishes of their members for: the creation of jobs, creation of new businesses, bonus on capital invested, provision of services for members, development of socio-cultural activities, etc.
7.2 Social Economy in Spain
Spaniards accords social economy significant status. In 2011, Spain enacted legislation in an endeavour to strengthening the role of the social economy. More recently, Law 31/2015 of 9 September amends and updates regulations in matters of self-employment and adopts measures to foster and promote self-employment and the social economy, completing the legal framework by establishing measures to develop and foster Spanish social economy. The Law defines social economy as a set of business and economic activities that are carried out, within the private sphere, by institutions that seek a general economic or social interest (or both) in accordance with the following principles:-
- Persons and the social objective take precedence over capital. This is reflected in an autonomous and transparent, democratic and participatory business management, where decision-making prioritizes people and their contribution to the work and services offered by the institution or the social objective over their contribution to equity capital;
- Profits obtained from economic activity are mainly distributed based on the work contributed or the service or activity carried out by the partners or members in regard to the social objective of the institution;
- Fostering internal and social solidarity, promoting a commitment with local development, equal opportunities for men and women, social cohesion, the integration of persons at risk of exclusion, generating stable and quality employment, work-life balance and sustainability and;
- Independence from the public authorities.
8.1 The Portfolio Committee noted with keen interest presenter’s emphasis and prominence attributed to education, skilling, training, continuous learning including vocational training as an instrument for creating a productive and knowledgeable workforce. At any rate, the group’s arsenal is its workforce. It was clear from presentations that the success of Mondragon is intertwined with the sort of grooming, mentoring, education and training offered by various institutions in the group particularly Mondragon University;
8.2 Members of the Portfolio Committee learnt that in the late 1940s, the priest had started a skills training centre which produced five engineers. In 1955 ULGOR was established, in 1956 the Manufacturing plant had 24 employees in 1958 had 149 employees who were members and owners of the business. ULGOR developed to have 21241 members. This was achieved with no assistance from government;
8.3 Investment in research and development (R&D) averaging three (3) percent of the group’s revenue is exceptionally higher than Spain and international average of two (2) percent. This partially explains the level of quality and high performing equipment and machinery that cooperatives like Fagor Arrasate and Ulmar Packaging produce for export market;
8.4 In relation to 8.3, the Corporation’s high levels of profit reinvestment into the business guarantees that the group generates adequate reserves to cushion it during turbulent times such as the economic crisis of 2008 which nearly wiped out Spain’s economy but left Mondragon Corporation intact;
8.5 The Portfolio Committee noted that during foundational years of Mondragon, there was an apparent requirement of a financial institution to bankroll some of the projects and cooperatives, which owing to weak balance sheet, could not access trading finance from traditional commercial banks. This gave birth to a group’s cooperative bank, Caja Laboral Kutxa with current customer base of more than 1.8 million;
8.6 The Mondragon Corporation has a Consulting Business Management that operates at international level providing training and management services to cooperatives training institutions and cooperative enterprises;
8.7 To stimulate Spain’s social economy cooperative enterprises in Basque country and Spain are incentivised differently from capitalist type of enterprises, for instance, company tax is 25 percent for capitalist businesses and 20 percent for cooperative enterprises. They are rewarded by government for continuous investment on job creation and social development at community level;
8.8 Mondragon approach to cooperatives development puts lot of emphasis on cohesiveness of the cooperatives within the group, inter-cooperation between/among cooperatives, cooperation among members, strength of scale as Mondragon group is a collection of cooperatives. It was equally interesting to observe that there is no ideology behind the success of Mondragon other than quest to create wealth;
8.9 The Committee further observed critical responsibility of the Lagun Aro, a safety net that ostensibly allay employees anxieties associated with retrenchments, economic crisis or any belt-tightening exercise corporations go through from time to time. The Mondragon group has an internal strong and vibrant social security system that has existed for more than six decades. Initially, Mondragon’s worker-owners were not originally considered employees under state law. As a result, Mondragon had to set up its own social safety net, which it organised as a cooperative called Lagun Aro. Later, Spain revised its position on coverage for worker-owners and Lagun Aro now provides benefits side by side with those offered by the government;
8.10 As per 8.9, the Mondragon pension system is now well aligned and fully integrated with the Spanish government system. Mondragon retirees receive 60 percent of their pension from the government and 40 percent from the Mondragon system. In total, they receive 80 percent of their former salary, enabling them to retire without having to make major shifts in their lifestyle. This is decidedly a huge pull factor;
8.11 Members of the Portfolio Committee were not aware of their assumptions about Mondragon until they arrived and found themselves surprised by lot of things. For instance, Mondragon creates a different paradigm based on workers’ cooperatives. To some extent, the Mondragon cooperatives have tried to tackle the issue of the lack of worker control over a business, and they have done it in the following fashion: (1) by creating workers ownership over a business, thus transforming the historical relationship of antagonism between the workers and management by creating a joint decision-making process. This has been put into practice through the one worker, one vote policy and by establishing workers representation at all decision-making levels. (2) They have created wealth in their community by creating and keeping local jobs. (3) They have created a local economy that is unavoidably connected to international competition, but based on a deeper commitment to their values, and their way of being in the world as workers’ owned businesses;
8.12 Members of the Committee were pleasantly surprised, the first thing you read when you enter Mondragon Corporation headquarters is a motto, “humanity at work”. The Mondragon cooperatives are in the world of business, but they are value driven too. The experience was rare considering that back home, we are used to individualism and competition for profit making which does not take into account human values, since it always put profits as a priority;
8.13 For too long, and perhaps to its detriment, South Africa’s conservative approach to improving human welfare and social conditions through, among others, optimum distribution of wealth, the relief or reduction of unemployment has actually assumed a straightjacketed approach of dipping into fiscus as opposed to creating self-sustaining enterprises that contribute to the economy. The social economy policy in South Africa is on the cards. It is expected to provide a consistent and coherent framework for support to social economy enterprises and organisations including cooperatives, mutual societies, voluntary and community organisations which are involved in economic activities and direct their surpluses in pursuit of social, environmental and community goals at the course of their existence;
8.14 The Mondragon model is self-sustaining and independent in every aspects. For instance, here at home social grants are used as a perpetual poverty alleviation strategy, whereas in Spain and Basque country in particular, social relief is considered a temporary provision of assistance. The same predicament can also be observed in the way National Student Financial Aid Scheme (NSFAS) is used in South Africa compared to the youth, or, students in Mondragon, who are part owners of the university. At the initial stages of careers they are placed in various cooperatives where they are trained while receiving income to pay for their studies;
8.15 In South Africa, the decision to develop cooperatives as a pillar for economic transformation was taken by the ANC in 1969. After 1994, the Department of Trade and Industry (the dti) was mandated to develop cooperatives. In 2009, the dti produced a report indicating that cooperatives mortality rate was sitting at 88 percent. In 2014, the DSBD was established and mandated to develop cooperatives. In 2016 the Portfolio Committee asked the DSBD to present a development status of cooperatives assisted by DSBD, the DSBD struggled to find those cooperatives, to date DSBD has not presented to the PC a report of cooperatives with tangible results, although government has spent millions of rands on cooperatives, there are no positive results;
8.16 Interesting to note also, this was explained by Mondragon leadership, was the fact that cooperatives are practically immersed in the world of business, where they have to produce and compete like any other business for survival. Cooperatives from Mondragon are very much alive to the fact that they are operating in the world of capitalism. They therefore, like any other business, strive for new business deals and to remain innovative at all time;
8.17 The programme was packed with information and opportunities to hear from those at the helm of navigating Mondragon’s ship. Participants received a lot of background information and offered books, booklets and leaflets at the end of the visit;
8.18 Members of the Committee felt cared for. The organisers, particularly the staff and leadership of Mondragon Corporation, were extremely friendly and helpful, they guided Members of the Committee everywhere, gave them useful clues on sights to visit, places to visits and people to get acquainted with;
8.19 Members appreciated the use of power point presentations, slides on overhead projectors and handouts with presentations. The excellent use of English of the speakers or the translations into English made the visit an extraordinary experience;
8.20 Altogether, the study tour provided participants with an intense, but balanced overview of the Spain and Basque country economic and political systems, and that of Mondragon Corporation;
9.1 The Cooperatives Act as amended needs to be re-examined to identify enabling provisions of the Act which need implementation as well as hindering clauses of the Act which have created bottlenecks and hindered bottom-up development of cooperatives. The Portfolio Committee has observed that the presidential minutes to effect the proclamation of the Cooperative Amendment Act, No 6 of 2013 have been submitted to the Presidency for proclamation. The Portfolio Committee would like to caution the Department to be circumspect as hastening the proclamation might render the process completely void and annulled by what the Department may uncover in its quest to integrating Mondragon model. The period that has elapsed since the Department of Trade and Industry began working on the review of the Cooperatives Amendment Act (2010) is too long and this piece of legislation seem to have been overtaken by events which necessitates a fresh approach;
9.2 There are a number of aspects of Spanish and Basque political and economic systems such as ‘decentralisation’ of policy making that can be replicated or serve as an inspiration for cooperatives. There is therefore a need to overhaul the entire system designed post 1994, act, strategy and incentives, for development of cooperatives as the system has proved to be a huge failure leading to 88 percent failure rate of cooperatives. Assuming these were results of the Department of Health, the outcomes would have been regarded as a national catastrophe. The same should be attributed to these results in terms of community socio-economic development, poverty reduction and the NDP goal of creating 9.9 million new jobs through small businesses by 2030;
9.3 South Africa needs to broaden its perspective about the concept of cooperatives and the need to position cooperatives as effective instruments for changing ownership and the structure of the economy to bring about a Mixed Economic System in South Africa;
9.4 There is a need for the Portfolio Committee to re-assess proposals made by the Department of Small Business Development on Programme Review regarding the Cooperatives Development Programme in DSBD including delegation of functions to establish the Cooperatives Development Agency (CDA) to Small Enterprise Development Agency;
9.5 The role of the Cooperative Banks Development Agency (CBDA) need to be revisited. It should be more developmental than regulatory;
9.6 The role of a government owned National Cooperatives Training Academy as envisaged in the Act also needs to be examined;
9.7 There are more than one Apex bodies of cooperatives in South Africa competing amongst themselves, these include two structures of SANACO, NACSA and NACFISA. The lessons learnt from CEPES in Spain could assist in restructuring the cooperatives movement in South Africa. The Department must brief the Portfolio Committee how it plans to assist the cooperatives movement in South Africa to establish one Apex body;
9.8 The Portfolio Committee must invite all national bodies of cooperatives including the two structures of SANACO, NACSA, NACFISA and SANCOC, as all these are national organisations who are positioned as representatives of cooperatives. The engagement with them shall be aimed at understanding how the cooperatives movement is structured in South Africa and how existing national structures add value to their members as well as how they relate to each other;
9.9 The role and impact of incubators in South Africa providing services to cooperatives instead of a government owned agency needs interrogation;
9.10 The Department needs to present to the Portfolio Committee the total investment made by the South African government on cooperatives (Total package of services provide to cooperatives by DSBD and other departments detailing the success rate of cooperatives including members = workers = owners of cooperatives assisted by DSBD and other departments). All this needs to be assessed against the background of the 88 percent mortality rate;
9.11 There is a need for the Department to do skills audit to assess the knowledge of the concept of cooperatives by officials within the Department who are tasked to facilitate development of cooperatives and to also assess how that knowledge is applied to enable communities to establish Community Owned Enterprises and transform the economy in South Africa to bring about a mixed economic system. If it is found that there is knowledge deficit, those officials in the Department should either be provided with necessary training or be deployed in programmes which match their training background and skills level;
9.12 In 2017 the Chairperson of the Portfolio Committee Ms Ruth Bhengu presented to the Portfolio Committee a Cooperatives Based Community Economic Development Model which she said she had worked to develop over a period of ten years. The model has features of the Mondragon Cooperatives Model in it. In the same meeting. In the same meeting, the Chairperson informed the Committee that in 2016, the Institute for Cooperatives and Community Economic Development (ICCED) NGO had adopted the Cooperatives Based Community Economic Development model. ICCED operates from Merrivale in Howick. The Portfolio Committee on Small Business Development and DSBD should therefore invite ICCED to present to the Portfolio Committee the implementation plan of the model and progress made thus far in order to assess the relevance of the model to South African challenges;
9.13 South Africa must move swiftly on social economy. The Department of Small Business Development needs to form part of the steering committee in order to guarantee that the voice and interest of social enterprises is heard and protected. The tripartite project on the development of country’s social policy seeks to take advantage of the favourable conditions for developing a social economy policy for South Africa, following the implementation of a range of projects that have enhanced existing knowledge and built a community of actors and agencies committed to growing and developing this sector;
The Committee expresses its sincere appreciation to our hosts in Spain, Mondragon Corporation and South African Embassy, who made time to meet and had an extensive interaction with the Portfolio Committee.
Report to be considered.
MONDAY, 17 September
Knowing Mondragon Corporation and Cooperative Experience
08:30 Transfer from hotel in Bilbao to Mondragon
09:30 Reception in Mondragon Corporoation and video presentation
Mr. Oskar Goitia - President: Mondragon International
10:00 Mondragon Group presentation
Mr. Inigo Albizuri – Institutional Relations Director, Mondragon
10:30 Cooperative Model Essence and Social Transformation Mission
Mr. Ander Etxebarria – Cooperative Experience Dissemination
11:30 Creating the right environment to set up and manage cooperative companies. Training,
Financing, Value Proposals and Markets
Mr. Carlos Barandiaran – LKS (Mondragon Company)
Mr. Kepa Bargara – ALECOP (Vocational and Continuous Training Mondragon Company)
13:30 Lunch at Olandixo Corporate Restaurant
15:30 Visit to OTALORA, Mondragon Management Training Centre
Mr. Ander Etxebarria – Cooperative Experience Dissemination
16:30 Transfer to Bilbao
TUESDAY, 18 September
Visit to Mondragon University, Manufacturing and Capital Goods Sector Cooperatives
09:00 Transfer from hotel in Bilbao to Mondragon
10:00 Visit to Mondragon University: Cooperative Education – Engineering, Humanities and Financiang
Mr. John Altuna – Academic Vice Rector
12:30 Transfer to Onate
13:00 Working Lunch at Zumeltzegi Restaurant
14:45 Transfer to Onate
15:00 Visit to ULMA Packaging: Leading cooperative in food processing and packaging, with subsidiary in Gauteng
Mr. Aingeru Gallastegi – Area Manager
16:00 Transfer to Mondragon
16:30 Visit to FAGOR ARRASATE: Leading cooperative in processing of industrial and capital goods in steel processing sector with strong presence in SA companies i.e. Volkswagen in Eastern Cape
Mr. Baltasar Perez – Marketing and Internationalisation
18:00 Transfer to Bilbao
WEDNESDAY, 19 September
Visit to Basque Government and Institutions
08:00 Transfer from hotel in Bilbao to Basque Government in Vitoria
09:00 Meeting in the Basque Government Foreign Affairs
Ms. Marian Elorza – Foreign Affairs General Secretary
10:00 Transfer to Gernika
11:45 Guided visit to the Casa de Juntas in Gernika
12:20 Transfer to Bilbao
12:45 Meeting the Basque Government Industry Ministry of Economic Development and Basque Trade Investment Agency
Mr. Javier Zarraonaindia – Vice Minister for Industry Economic Development
Ms. Ainhoa Ondarzabal – Director for Basque Trade and Investment Agency
13:30 Lunch in Bilbao, Summary of the meetings and reflection
Mr. Oskar Goitia – President: Mondragon International
15:30 End of the Basque Country visit
17:00 Transfer to Madrid
THURSDAY, 20 September
Visit to Spain Parliament
09:00 Transfer from hotel Miguel in Madrid to Parliament
11:00 Transfer to Hotel Miguel Madrid
FRIDAY, 21 September
Visit to the Spanish Business Confederation of Social Economy
09:30 Transfer from hotel Miguel in Madrid to Spanish Business Confederation of Social Economy (CEPEC)
11:00 Transfer to Hotel Miguel Madrid
End of the Study Tour
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