A Targeted Approach
to Worker Co-op Development:
Lessons from Mondragon and Northern Italy
Sherman L. Kreine
PACE of Philadelphia has used an extremely "targeted"
strategy for developing worker-owned enterprises in the food business.
Our results include a food-brokerage company, a lobster plant and
distribution warehouse and a network of supermarkets (the O&O
Store) in the Philadelphia area. The O&O stores are formally
linked through a second-degree co-operative which sets standards
for use of the trademark and tradename, establishes requirements
for technical assistance, facilitates deals for goods and services
for all stores and serves as a locus for discussion of common problems.
Assistance is also being provided to a second worker-owned supermarket
network and the conversion of a food-processing plant to worker
Advantages and Disadvantages
Targeted strategies offer several advantages. First, there is expertise
which permits the rapid assessment of prospective deals. Second,
by concentrating on businesses which have some similarities, it
is possible to build links, formal and informal, and in so doing,
create the potential for common problem-solving and economies of
scale in the purchase of goods and services.
Targeting also has disadvantages. The flow of quality deals may
be limited. Targeting also implies a lack of diversification and
a vulnerability to changes in a local economy.
The PACE strategy was created after a careful evaluation of successful
international experiences. The most elaborate network of targeted
businesses is the Mondragon worker co-operatives in the Basque region
of Spain. There, 85 industrial co-operatives employing about 20,000
worker-owners are individually linked through contracts of association
with an entrepreneurial credit co-operative, the Caja Laboral Popular,
whose board is controlled by representatives of member businesses.
These businesses are also linked through several other second-degree
co-operatives, which provide social-security benefits, health benefits
and unemployment insurance, technical and other education for members,
and technological research for the system. In addition, the individual
businesses are formed into federations, both geographic and sectoral,
to capture economies of scale and to undertake planning and development
PACE has also learned from the metal-fabricating industry of northern
Italy. That system not only includes worker co-operatives, but non-coops
in the same industry. Relationships among business which perform
various portions of a manufacturing process are facilitated by a
proactive trade association. Businesses are encouraged to form consortia
to bid on some contracts although they may bid against each other
on other jobs. The trade association also provides goods and services
to the members, offering the benefits of economies of scale in pricing
and in purchasing. The association identifies gaps in the capacity
of the system and encourages the creation of new enterprises to
fill those gaps. Those new enterprises are, in fact, the "targeted"
businesses. Once created, they become a part of the larger system,
competing and co-operating as appropriate.
As stakeholders in the northern Italy system, existing worker co-ops
have a vested interest in assuring that new businesses succeed.
However, there is no independent loan fund for new enterprises.
Instead, each of the members in the system participates in a credit
co-operative that serves a surety for a local bank loan to a new
business. Loans are guaranteed with unencumbered assets of co-op
members. That financial stake, and the authority to approve deals,
prompts a level of scrutiny which has been instrumental in keeping
loss rates extremely low -- less than one per cent.
The O&O group has also been influenced by the approach to management
development in Mondragon and northern Italy. The northern Italy
group identifies new managers from existing businesses in the system.
O&O has already adopted this practice.
The Mondragon approach is even more elaborate. There, prospective
managers are linked with business consultants employed by the Caja
who, on a one-to-one basis, help to develop a business plan, and
who also serve as a management consultant ("godfathers")
as needed, after start up. In addition, the system develops managers
through its technical-training school which has more than 1,000
Consider also the scale of the financial and entrepreneurial divisions
of the Mondragon system. The Mondragon bank has over 1,000 workers,
120 branches and 500,000 customers throughout the Basque region
of Spain. As a credit co-operative of the associated co-operatives,
its primary loan activity must be with those co-operatives. Its
banking division performs all the usual functions of a modern savings
bank. Its entrepreneurial division, with more than 100 employees,
systematically goes about the process of creating new firms at the
rate of five new industrial co-operatives per year. Its functions
include the exploration of market and product possibilities, the
training of managers and the development with them of specific business
plans, the financing of start up costs, the packaging of the permanent
loan request to the banking division and the provision of ongoing
A new approach
How do we get from here to there? We must not limit our vision
of system participants to worker-owned business. The manufacturing
network of northern Italy suggests that it is possible to create
a dynamic system through linking worker-owned business with conventionally-structured
businesses that share common needs. As the network of businesses
expands, the employees and worker-owners become a natural constituency.
The financial institution we develop needs to be depositor-based,
like Mondragon's Caja Laboral Popular or some of our most well-endowed
American counterparts -- the Community Center for Self-Help credit
union in North Carolina being an important example. It may be that
we are simply talking about a proactive bank -- an entrepreneurial
On the other hand, perhaps we want something like The Solidarity
Fund, developed by the Quebec trade-union movement. Legislatively
created, and funded exclusively by payroll deductions of unionized
workers, (with federal and provincial tax credits associated), its
purpose is business development in Quebec, which may include worker
co-operatives and other alternatively structured businesses. It
is fundamentally a ventures fund. A major portion of its portfolio
must be used for equity, rather than relatively short-term loans.
It does not provide conventional banking services to depositors,
but rather is obligated to pay out the initial investment plus the
mandated return on that investment, at retirement.
Similar approaches more explicitly geared to the development of
worker-owned businesses might identify other constituencies of investors,
including members of religious organizations, women's organizations
and organizations of minority groups.
In summary, targeted development has been extremely successful
internationally, and in limited American experiments such as O&O.
To take this model further we need to develop a depositor-based
financial institution that is also entrepreneurial. That institution
should have a governance that is dominated by businesses from the
system that it is helping to create.
Sherman Kreiner has been executive director of PACE of Philadelphia
for 10 years. He is currently president of the Lanark Development
Corporation, a PACE-created enterprise-development organization.
For more information he can be reached at PACE 2100 Chestnut Street,
Philadelphia, PA 19103 (215)561-7079.
Reprinted from Worker Co-op: The Voice of Economic Democracy
in Canada. Worker Co-op is published quarterly. A subscription
costs $17/yr; $32/2 years. Write to Worker Co-op, 348 Danforth Ave.
#212, Toronto, ONT, M4K 1N8
Published in the Connexions Digest #48, Winter 1989
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