Mondragon economic system essay
Students of economic majors are constantly faced with a wide variety of assignments. Economics is a very broad specialty requiring knowledge, practical skills, the ability to analyze information and make the right decisions depending on the particular situation. Therefore, if your professor asks you to write a Mondragon economic system essay, don’t rush to panic. Even if you don’t know anything about this topic, you have a great chance to broaden your horizons now.
We will provide you with basic information and a couple of tips on how to make your essay truly meaningful. Before you begin the writing process, you should learn more about this economic system, get an idea of how it functions, what strengths and weaknesses it has.
What is the Mondragon economic system?
Mondragon Cooperative Corporation is a Spanish business-based social and economic initiative. It is an organization from the Basque region, founded by José María Arizmendiarrieta. It seeks to protect the environment, increase competitiveness, and satisfy customers in order to create a prosperous society. The Mondragon corporation is based on solid ideas of solidarity. Organization and management are working because of democratic methods.
Corporate executives seek to attract more people setting up their companies. Each new joint project allows you to achieve personal, social, and business progress. Those who need it can get the necessary personal and technological skills to succeed in the market for years.
Why is the Mondragon economic system worth to learn?
This system is called an example of an egalitarian and democratic organization of work. Many economic researchers have studied this business group of cooperatives and analyzed its benefits.
If such groups became more widespread in the market, this would help to more equitably distribute income and capital. Cooperatives such as Mondragon provide people with access to stable work and the development of managerial abilities. The worker-owners are involved in collective decision-making, and therefore they feel their personal responsibility for business development.
Of course, this may sound utopian enough. Honestly, even in real Mondragon, this scheme is not fully implemented. However, this community is on the right track.
By exploring the benefits and challenges of Mondragon, one can understand how to build a more egalitarian society.
What should you write in your Mondragon economic system essay?
When you write an economic paper of any type, you need to be aware of your responsibility. Writing these essays requires careful preparation. You will need to study a large number of sources, in particular the Malleson, Whyte and Whyte, Hansmann researches, etc. You can get a list of trusted articles from your professor, as well as the Mondragon corporation criticism. That will help you learn more about how Mondragon was organized, how this system works, and what advantages it has. Reading different pieces, you may come up with new insights for your paper.
It is a good idea to write an essay where you explain the main points of a cooperative model in simple language. Many people who don’t have an economic education know about capitalism, the planned model of the economy, the traditional model. But they don’t know anything about Mondragon. And you can provide a paper describing the history of this cooperative community, it’s advantages.
3 reasons to choose the co-operative economic model
1. Low-income gaps
The cooperative model offers several advantages. The first is the absence of a significant gap between workers who receive the highest and lowest incomes. The maximum ratio is 6: 1. In 2014, the lowest salary in the Spanish cooperative was 1,500 euros per month.
Initially, the founders of ULGOR, considered the first cooperative, established a 3: 1 ratio. However, the group structure has increased and become more complex. Some executives realized that they were underpaid. Therefore, an optimal ratio of 6: 1 helps to attract good managers. In addition, companies provide not only a decent salary but also good working conditions. In particular, managers share the values of their cooperation.
Speaking of Mondragon, there are some exceptions. Sometimes, cooperatives need a highly specialized paid worker. They can get more than managers, but since they are not members of cooperatives, they have no other advantages. For example, they are denied the right to vote.
2. Ability to split capital
Cooperatives workers-members have the opportunity not only to receive decent wages. Each of them has its own share in the company. This helps reduce inequality in society. And this is the second significant advantage of the Mondragon Economic Model. Judging by the study, capital ownership has other positive aspects. For example, it helps provide people with purchasing power, job security, and other opportunities.
Co-op owners can also diversify and integrate networks, avoiding a lot of problems. For example, if market fluctuations lead to temporary difficulties for one of the cooperatives, its members may decide not to lay off people, but to reduce working hours and wages. At the same time, other cooperatives can also temporarily reduce their income and subsidize the organization that has encountered problems. If it becomes necessary to close a particular cooperative enterprise that has lost profitability, people will be trained and transferred to other cooperatives. Such solidarity is a reliable guarantee of job stability.
3. The distribution of important decisions
The third factor, which is also of great importance, is the separation of formal decision-making powers. All member workers can express their opinion on domestic policy, the ratio of income, plans of the cooperative. This means that each company changes its work strategy based on what is beneficial for all members. Instead of firing people, they can adjust working hours or wages. The inequality of power is minimal.
Of course, organizing democratic decisions in such a group can be difficult. For this, Mondragon created a special Social General Council. They stimulate participation in democratic processes, and also make communication between managers and employees easier. Moreover, even if not all employees feel completely involved, the number of satisfied member workers is still higher than in any even the largest capitalist company.
Main Mondragon challenges
If you are targeting a more advanced economic audience in your Mondragon corporation essay, try to focus on the main challenges. Of course, any economic model has not only positive aspects but also difficulties. It is the challenges that allow us to develop and find new ways to achieve success. Below you will find a list of challenges that have already been overcome, as well as those that still remain relevant for Mondragon.
3 challenges that Mondragon has overcome
- Access to capital. This is the first problem that any cooperative faces. If we talk about firms that belong to the investor, they can sell shares and raise capital. it is profitable for investors to invest money, as they have the right to control and residual profit. The situation is different in workers’ cooperatives because these rights are reserved for workers. This means that industrial cooperatives cannot raise capital. The radical property system helped solve this problem. New employees receive a certain period for the accumulation of capital. There is a Constitution that defines the rules for investing, for example, workers should invest 10% of their profits in public projects. There is also a reserve fund that protects the cooperative in crisis situations.
- Democratic transaction costs. The second important challenge is the difficulty of maintaining democratic processes in a context where a cooperative is expanding rapidly. The main difficulty is that such an approach has high transaction costs. In making democratic decisions, more people with diverse interests need to be involved. At the same time, shareholders have the same plans for profit. Hansmann argues that this is what affects the decrease in the efficiency of cooperatives. There are as many as 3 ways that Mondragon can handle this challenge. First, it is possible to reduce transaction costs with the help of representative systems. Secondly, employees have a strong motivation to work, organize work efficiently, and increase productivity. Thirdly, the cooperative structure can reduce the number of other costs, such as supervision. Of course, transaction costs still remain, but these three factors make it possible to compensate for them, obtaining the necessary productivity and efficiency.
- Stimulating of innovations. The third problem is relevant not only for many cooperatives but also for any small and medium sized firms. Sizes don’t allow to attract significant capital. This leads to the fact that investing in research and development is not easy. Mondragon found as many as two ways out of this situation. First, they founded the University of Mondragon, which can provide firms with young employees, as well as to conduct research. They also created IKERLAN, another co-operative of the second degree, which concludes research contracts.
2 challenges Mondragon still faces
- International competition. Some challenges are difficult for cooperatives, but, nevertheless, finding a way out of the situation is not so difficult. But there are problems like competition with international firms. Back in 1987, when Spain entered the European market, Mondragon faced this problem. First, cooperatives don’t have the same working conditions and wage standards as ordinary capitalist firms. In addition, they cannot hire and fire employees, and this is sometimes perceived as a competitive advantage. Finally, the capitalist firm may move to a country with less demanding taxes and labor laws.
- Degeneration and growth of non-members. On the one hand, the ownership system of Mondragon doesn’t allow the cooperative to degenerate into ordinary enterprises owned by investors. Workers-members cannot sell their shares and benefit from capital gains. This has certain consequences, such as rapid degeneration. Even though membership is not so expensive, international competition does accelerate degeneration. Because of this, Mondragon and other similar cooperatives don’t have many opportunities to adapt to market fluctuations. However, Mondragon has a real plan to remedy the situation.
How can the government support the Mondragon economic system?
This is another good idea for your paper. Studying the Mondragon experience, you can offer several options for what contribution the state can make to the development of such an economic system.
Provide data and build trust
One of the main challenges for cooperatives is the lack of information about this model. People don’t know about it and don’t trust it. If you talk with your friends who are not studying economics, they probably will not be able to explain the principle of the cooperative. This means that people are suspicious of such a financial institution. But in some regions of Spain and Canada, where the cooperative is one of the main financial institutions, people trust this model.
The state must believe in this model and remove a number of legal barriers that arise when creating new cooperatives. Business schools can teach this model. States may provide grants.
Simplify access to capital
Of course, Mondragon overcame the problem of capitalization. But many other cooperatives are faced with the problem of access to capital. What can states do in this case, in addition to building confidence in the model?
- expand tax incentives;
- develop subsidies and help workers buy firms to turn them into cooperatives;
- push financial institutions to create products for cooperatives;
- develop certificates to inform people who want to invest in egalitarian firms.
Maintain a democratic decision-making system
Democratic decisions provide positive results. This is what helps to increase wages, improve working conditions, and reduce inequality. If a cooperative grows, managers gain more influence, and democratic participation falls.
Some institutional guarantees from the state can support it.
This is another important task for both small firms and cooperatives. The state can also contribute. In particular, it can provide universities with adequate funding. It can also promote the commercialization of research. If there is a moderate competition between researchers, this really stimulates innovation.
Another aspect is that states can subsidize the creation of collective research centers.
Protection against unfair competition
In fact, cooperatives are more important for society and the state than capitalist firms. They provide workers with freedom and prosperity. They create jobs and reduce power inequality. Capitalist firms, on the contrary, contribute to the creation of inequality.
However, competition between cooperatives and capitalist firms often becomes very complex. Moreover, this leads to costs. For example, if workers don’t receive decent salaries in their firms, they need government assistance. And if they lose their jobs, the state pays them unemployment benefits.
Contributing to the elimination of competition, the state supports cooperatives, and therefore society.
Make your Mondragon economic system essay perfect
You can use any information from this article to come up with new ideas and write a good paper. But there are also many other useful sources that will help you find new facts and insights.
Make sure you have enough time to gather information. Organize it so that you get the main sections of the essay: introduction, 3 paragraphs, and conclusion. Depending on the number of pages, there may be more paragraphs. If you use any of your arguments, you need to support them with evidence from trustworthy sources.
This writing task requires a lot of time and effort. An economic essay doesn’t allow any inaccuracies. What if you understand that you cannot prepare the paper for an A-assessment?
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