The End of Fagor

INTRO

Sometimes companies die.  And some are cooperatives.  In this case we must mourn the demise of the white goods producer Fagor, Mondragon's flagship and one of the enterprises that became the model of market socialism.

The Spanish political party that represents the local right wing, a direct successor to Franco's regime, created a real estate bubble during the first decade of the 21st Century.  The bubble burst in 2008 as a direct result of the American mortgage-bonds collapse, thus slowing the demand for the kinds of goods that Fagor produced.

We need to ask why Fagor could not survive this gigantic blow, and we need to determine if we can build mechanisms to protect cooperative companies from such a distasteful ending.  The jury is out on the reasons for the low number of cooperatives' formation compared to the omnipresent capitalist businesses, thus the few good examples we have are momentarily precious to us.

The intellectual defense is important for the protection of the cooperative effort.  We must ascertain if cooperatives fail due to their nature (governance, capital accumulation and investment, labor flexibility), or it is just their normal participation in the capitalist cycle of boom and bust.  It is imperative to demonstrate the second case because the omnipresent enemies of change will always maintain that a cooperative corporation is "unnatural" and "goes against the greedy instincts of human beings", which they sustain is exclusive of capitalism and the cause of the existence of the current system.

CAUSES OF THE FALL

Anjel Errasti, Ignacio Bretos and Aitziber Nunez wrote a short article called "The viability of cooperatives: The fall of the Mondragon cooperative Fagor", recently (for academic time-tables) published in the Review of Radical Political Economics.  According to the authors, results suggest that cooperatives are actually better suited to survive these economic shocks for longer than their capitalist counterparts. It just makes sense that a group of workers would decide to resist and maintain their jobs instead of selling their company complete or in parts. Fagor grew under the tariff barrier of the isolated Franco's economy.  It is a typical import substitution policy which, purposefully done or just as an unintended result, was common in many peripheral countries of the era.

Fagor was a full fledged cooperative experience from beginning to end, interestingly including the transference of jobs from parents to their children if they wished to do so.  It was the company of their workers and their families. It expanded as a multinational at the end of the 1970s maintaining employment levels in their central, but transferring less profitable endeavours to cheaper locations abroad.  A relationship between metropolis and colonies in miniature.  

When the Spanish economy crashed in 2007-2008, it took the feeble base on which this colossus had been built away.  Authors point that Fagor faced "(...) competitive pressure from larger and technologically more advanced firms on the one hand and the firms from emerging economies on the other.'' Concentration took place.  Fewer firms controlled now the white goods market in Europe. Fagor was too dependent on a shrinking economy and it had higher production costs than those of companies producing in poor countries.

BIG OR SMALL? 

Now that the stage is set, allow me to include a personal note: I come from Argentina, a country in development with a zigzagging political and economic pattern, boom and bust cycles, based on the changing middle class support of center-left Keynesian demand-increasing measures OR neocon extractive (and destructive) governments.  If capitalists are generally risk-averse, small companies in my country are terrified of it. Managers and owners know that general change is always around the corner and it is not possible to plan for it maintaining the same production structure, or even the reason for the existence of the business itself. Thus they become extremely conservative in their planning.  Small companies often remain that, working at full capacity even if demand soars. This lack of investment is pervasive and affects the entire economy, but the survival of the small and lean business is preferable to closure.

The question beckons: would a series of connected small specialized companies work better in a crisis than a vertically-integrated giant such as Fagor? Or only can the biggest be winners?

There is an additional problem related to Fagor's size: the rejection of new and efficient processes in acquired companies.  It often happens that the acquisition of a small firm results in the implementation of the slower processes utilized in the mother company with the objective of integration for ease of control and replacement: this means that workers' functions are simplified at the point where they could be easily dismissed. It makes sense in a capitalist corporation: securing profits over any other consideration, until market/competition changes brings it down and it is time to transfer funds to the next investment.  It does not so in a cooperative, where the objective is to maintain the enterprise through time.

Is this then an organizational problem? Do power dynamics in headquarters' management define the relationship between a cooperative and its subsidiaries? Or is it an attempt to maintain the status quo of the common rank cooperative members? 

CONCLUSION 

Fagor expanded to be able to survive strong  international competition. This meant acquisitions and control over companies in low wage countries, whose workers were not cooperative members, and large amounts of debt incurred to fund these acquisitions and (ironically due to what is said above) technological modernization. Debt and the crisis of demand meant a painful process of downsizing and continuous help from the Mondragón conglomerate, which could not stop the bleeding. As said by the authors, "any business may fail". They also point out two big differences regarding Fagor and capitalist failures: the company was not absorbed earlier by a competitor, and through the crisis workers were relocated by the Mondragón corporation in other cooperatives. They fought until the end, and their soldiers live to see another (work)day. I call that a success.

Added to Accumulated Bibliography: (press to access)

ERRASTI A., BRETOS I., and NUNEZ A. (2017). "The viability of cooperatives: The fall of the Mondragon cooperative Fagor". Review of Radical Political Economics, First Published February 2, 2017.