Cooperative Economics

The Mondragon Corporation in Spain's Basque country is the kind of thing that shouldn't exist. Ninety-five cooperatives, eighty thousand employees, eleven billion euros in revenue, five hundred and five patents, twenty-four hundred full-time researchers. It makes bicycles, elevators, jet engine components, and wind turbines. It competes for contracts from General Electric and Blue Origin. Key parts of your espresso maker or car may have been manufactured there. And the highest-paid executive makes at most six times the salary of the lowest-paid worker.¹

Larry Summers declared at a 2019 conference that putting workers in charge of firms means you "do not get expansion." Mondragon has been expanding for nearly seventy years. The question isn't really whether worker ownership works — the evidence is clear that it does, at scale, in competitive international markets. The question is why it doesn't happen more often.

The Mondragon Model

The story begins with a one-eyed Basque priest named José María Arizmendiarrieta, who arrived in the town of Mondragón in 1941 to find post-Civil War Spain impoverished and fractured. He started study circles for young factory workers, created a technical school, and eventually shepherded five engineering graduates into founding a cooperative that made kerosene heaters. More cooperatives followed, each created to solve a specific problem: when the government excluded worker-owners from social security, Arizmendiarrieta organized a cooperative health and pension system. When affordable financing was needed, he organized a cooperative bank.

The growth pattern is instructive. It wasn't ideological expansion — it was pragmatic problem-solving that happened to take cooperative form. An obstacle appeared; a new co-op was created to overcome it. The cooperatives accumulated around each other like coral, each providing something the others needed: banking, insurance, education, R&D, consulting.

Several things about Mondragon's structure are worth noting because they challenge common assumptions about cooperatives.

First, it's genuinely democratic but not chaotic. Each co-op's general assembly elects a governing council, which appoints a managing director. The managing director runs the business, but workers vote on strategy, salaries, and policy. This is "competitive dictatorship" of the same kind David Friedman describes in Amish congregations — you can't micromanage every decision by vote, but you can choose your decision-maker and replace them if they fail.

Second, information flows freely. Conventional companies brief investors and shareholders on earnings and strategy; Mondragon's co-ops share the same detailed information with worker-owners. Visitors are routinely surprised by how much internal data is shared. This connects to a deeper point about cooperative efficiency: when everyone's incentives are aligned and everyone has the same information, you don't need the elaborate monitoring and principal-agent bureaucracy that conventional firms require. Multiple academic studies have found cooperatives with worker governance are as profitable as or more profitable than ordinary firms.¹

Third, the pay ratio matters more than you'd think. Originally three-to-one, it's now six-to-one (still far from America's 351-to-one average for large companies). But even this modest widening has generated internal controversy. At a recent extraordinary general assembly, workers near the bottom of the pay scale voted on a proposal to widen the gap — and it passed, because the workers themselves recognized the competitive pressures. The system's strength is that such decisions are made by the people they affect, not imposed from outside.

The Limits

Mondragon's overseas workers are not owners. It operates 132 production plants in 32 countries, often near the assembly sites of major customers, and these plants run as conventional subsidiaries. Chomsky has praised Mondragon but noted this contradiction: "they still exploit workers in South America." Mondragon's management defends the arrangement on competitive grounds — if manufacturing were confined to Spain, the collective couldn't compete globally. But Fred Freundlich, a professor at Mondragon University, pushes back: "There are worker-owned companies who have figured out how to share ownership with their subsidiaries overseas. If they can do it, we should be able to do it."¹

There's also the concern about cultural decay. "Hard times make strong people, strong people make good times, and good times make weak people," says the grandson of one of the original founders. The cooperative ethos was stronger when Spain was haunted by the specters of Franco and war. Peace and prosperity have softened the urgency. But this decay is relative — an outside observer would still find Mondragon alien compared to conventional corporate capitalism. The pay ratio has widened from 3:1 to 6:1 over seventy years. In the same period, the US ratio went from about 20:1 to 351:1.

Techno-Feudalism and the Question of Capital

Yanis Varoufakis, former Greek finance minister and self-described "erratic Marxist," frames the current moment in terms that illuminate why cooperatives remain marginal despite their demonstrated viability. His argument is that we've moved beyond capitalism into something he calls techno-feudalism, where platforms like Amazon, Facebook, and Google don't compete in markets so much as own the markets themselves.²

In classical capitalism, profit comes from producing and selling goods. In techno-feudalism, rent comes from controlling the platform through which others produce and sell. Facebook's 1.9 billion users are a fiefdom; advertising premiums are the rent extracted for access. Amazon isn't a retailer that competes with other retailers — it's the marketplace where competition happens, and it extracts a toll from everyone who participates. Zuckerberg's metaverse ambitions are, in Varoufakis's reading, straightforwardly feudal: a digital fiefdom with a techno-lord.

This framing explains something that orthodox economics struggles with: why market concentration keeps increasing despite supposedly competitive conditions. The answer is that the platforms aren't competing within a market — they are the market. Network effects ensure that no one leaves (all your friends are on Facebook), and the data generated by users continuously improves the platform's ability to extract rent. It's a structural position, not just a competitive advantage.

Varoufakis is skeptical that any technology — blockchain, DAOs, cryptocurrency — can solve this. "To believe that you can fix money, or that you can fix the state, is to demonstrate a devastating innocence regarding the larger exploitative system with which they are integrated." He sees blockchain and decentralized organization as tools that will be useful after a broader political transformation, not tools that can bring it about. "Within our present oligarchic, exploitative, irrational, and inhuman world system, the rise of crypto applications will only make our society more oligarchic, more exploitative, more irrational, and more inhuman."²

This is where Varoufakis and Mondragon intersect uncomfortably. Mondragon works because it exists in a specific cultural ecosystem — the Basque country, with its culinary clubs and soccer loyalties and the memory of Arizmendiarrieta. "You can't have cooperatives without cooperative people," says Mondragon's president. But Varoufakis would argue that you can't have cooperative people without cooperative institutions — it's the institutions that shape the culture, not the other way around. The fact that Mondragon emerged from one specific valley under one specific priest's influence isn't a feel-good story about human potential; it's a warning about how contingent and fragile alternatives to extractive capitalism actually are.

Money as a Design Choice

If cooperative ownership is one alternative to the extractive default, monetary policy is another lever — though a much more abstract one. Modern Monetary Theory (MMT) makes a simple but counterintuitive claim: a government that issues its own currency doesn't need to tax in order to spend. It creates money by spending and destroys money by taxing. The national budget isn't like a household budget; the constraint isn't money but real economic capacity — labor, materials, and time.³

This matters for cooperative economics because it reframes the question of "how do we pay for it?" — whether "it" is a public works program, universal basic income, or industrial policy to support cooperative formation. The MMT answer is: you don't need to find the money first. You need to find the capacity — the workers, the materials, the skills. If those exist, the money is just an entry in a ledger.

The deeper point, which connects back to Varoufakis, is that money itself is a political technology. It's not a natural phenomenon that governments discover; it's something governments create. The rules governing money creation, lending, taxation, and debt are design choices, not facts of nature. Bitcoin maximalists and gold-standard advocates treat these as engineering problems with technical solutions, but Varoufakis is right that they're irreducibly political. "The presumption that the rate of change of the money supply can be predicted and foreshadowed within any algorithm" is the fallacy of composition writ large — imagining that what works for an individual wallet works for an economy.²

The practical implication is that the choice between cooperative and extractive economics isn't just about how firms are structured internally. It's about the entire ecosystem of institutions — monetary policy, tax policy, competition law, property rights — that determine who captures the value of collective effort. Mondragon works within capitalism by outcompeting conventional firms on their own terms. But the question Varoufakis raises is whether that's enough, or whether the platform lords will eventually own the market in which even cooperatives must compete.