“I know what you’re against, but what are you for?” That’s a question that socialists often hear. Capitalism, in the words of the Marxist economist Richard Wolff, is a system characterized by “endlessly repeated cycles, costly bailouts for financiers and now austerity for most people,” with “recurring tendencies toward extreme and deepening inequalities of income, wealth, and political and cultural power.” Any such system needs to be replaced, but what is the alternative?

In an op-ed for the British newspaper The Guardian1, Wolff argues that a successful alternative to capitalism already exists. He reports on a recent visit to the Mondragón Corporation (MC) based in the Basque region of Spain, the largest workers’ co–op in the world. Over the past few years, Wolff has been perhaps the most prominent economist who has attempted to explain to a general audience how the financial crisis of 2008 was rooted in capitalism itself.2 He also rightly rejects Soviet-style bureaucratic planning as a solution, describing it as state capitalist rather than socialist or communist.3 For both those reasons, the anti-capitalist model that he proposes deserves serious attention.

Mondragón was founded in 1956 and originally made paraffin heaters with a handful of workers, but over half a century later, it has developed into an economic giant. Today it is the seventh biggest Spanish company, employing over 80,000 people in financial, industrial, retail, and knowledge divisions, with over $19 billion of sales in 2012 and eighty-six subsidiaries in seventeen countries.

According to Wolff, “In each enterprise, the co-op members . . . collectively own and direct the enterprise. Through an annual general assembly the workers choose and employ a managing director and retain the power to make all the basic decisions of the enterprise.” He goes on to paint a very positive picture of how Mondragón functions, concluding “MC seems a welcome oasis in a capitalist desert.”

Wolff is absolutely right that workers’ control of production must be a central element of a genuine socialist alternative to capitalism, but he tends to view the Mondragón co-operative through heavily rose-tinted glasses. I’ll return to some of the negative realities that Wolff ignores shortly, but it’s worth noting first that at least in its early years, Mondragón did show that workers are more than capable of successfully running their own workplaces. Where managers are needed, they can be elected by the workers themselves and be held accountable for their decisions.4

In this respect, workers’ co–ops—Mondragón and many others—have historically demonstrated that there is a viable alternative to the capitalist organization of production. In his “Inaugural Address to the International Working Men’s Association” in 18645, Karl Marx praised “the cooperative movement, especially the cooperative factories raised by the unassisted efforts of a few bold ‘hands’.” According to Marx:

The value of these great social experiments cannot be overrated. By deed instead of by argument, they have shown that production on a large scale, and in accord with the behests of modern science, may be carried on without the existence of a class of masters employing a class of hands; that to bear fruit, the means of labor need not be monopolized as a means of dominion over, and of extortion against, the laboring man himself; and that, like slave labor, like serf labor, hired labor is but a transitory and inferior form, destined to disappear before associated labor plying its toil with a willing hand, a ready mind, and a joyous heart . . .

But while Marx was right, that considered as demonstrations these “great social experiments” were of great importance, he firmly rejected the idea that socialism could be established by the process of setting up one new cooperative after another. Is Wolff advocating such a strategy? That is not clear (although he concludes his book on the alternative to capitalism with a discussion of “ways to increase the presence and effects of [Workers’ Self-Directed Enterprises] in modern societies”6), but it does seem to be the view of another prominent advocate for workers’ co–ops, the political economist Gar Alperovitz.7

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The idea that society can be transformed by the introduction of cooperatives is not a new one. It was part of the strategy for peaceful social change advocated by the German socialist Eduard Bernstein at the end of the nineteenth century. But Rosa Luxemburg subjected Bernstein’s ideas to withering criticism in her pamphlet Reform or Revolution8, and Luxemburg’s criticisms retain their validity today.

“Co-operatives,” wrote Luxemburg, “especially co-operatives in the field of production, constitute a hybrid form in the midst of capitalism. They can be described as small units of socialized production within capitalist exchange.” The problem is that cooperatives that are established in the context of the capitalist market must compete in order to survive, and if the rate of exploitation is high among your competitors, then you must match it.

As Luxemburg put it, “in capitalist economy exchanges dominate production. As a result of competition, the complete domination of the process of production by the interests of capital—that is, pitiless exploitation—becomes a condition for the survival of each enterprise.” She continues:

The domination of capital over the process of production expresses itself in the following ways. Labor is intensified. The workday is lengthened or shortened, according to the situation of the market. And, depending on the requirements of the market, labor is either employed or thrown back into the street. In other words, use is made of all methods that enable an enterprise to stand up against its competitors in the market.

Some cooperatives find small niche markets in which to survive, but the majority will either be driven out of business or be forced to copy the practices used by other employers. In Luxemburg’s words:

The workers forming a co-operative in the field of production are thus faced with the contradictory necessity of governing themselves with the utmost absolutism. They are obliged to take toward themselves the role of capitalist entrepreneur—a contradiction that accounts for the usual failure of production co-operatives which either become pure capitalist enterprises or, if the workers’ interests continue to predominate, end by dissolving.

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The history of the world’s biggest co–op, the Mondragón Cooperative Corporation in Spain, is a perfect illustration of Luxemburg’s argument. Mondragón was set up with the ideals of worker participation, solidarity and equality, but as the business has grown bigger and bigger, and become more and more integrated into global capitalism, its founding principles have applied only to a shrinking percentage of its workforce.

In 1993, Britain’s Guardian newspaper reported that Mondragón was restructuring to get ready to compete in the European single market. It noted that “increased salary differentials, advertising campaigns in Fortune and cooperative alliances with companies like Hotpoint have had many co–op workers wondering whether in the new Mondragón Cooperative Corporation [MCC] some members are more equal than others.”9

By this time daily life for most Mondragón workers was not noticeably different from working for a more traditional capitalist employer, although with greater job security. Decision-making had become highly centralized, with most co–op members having no say in the company’s day-to-day operations. Perhaps not surprisingly, in a survey comparing job satisfaction of Mondragón manual workers with workers in a similarly sized privately-owned company, there was little difference between the two groups, with the Mondragón workers slightly less satisfied.10

A few years later the Guardian reported, “MCC members have learned to think like the shareholders of any other global business. In order to protect their own jobs from fluctuations in demand, 20% of the workforce are on part-time or short-term contracts and can easily be shed.” The corporation president, Antonio Cancelo explained: “Our clients cannot guarantee us steady workloads, so we have to have a number of people on temporary contracts. We live in a market economy. That we cannot change.”11

Meanwhile, most workers employed by Mondragón outside of the Basque region are not members of the co–op. By the late 1990s Mondragón was setting up joint ventures with capitalist firms in other parts of Spain, and operating plants employing low-wage labor in countries such as Morocco, Egypt, Thailand, and China.

MCC adopted an ethical code for its foreign employees and promised that their treatment would reflect the cooperative’s “core values.” But in early 2011, Mondragón was accused of employing sweatshop labor in an appliance manufacturing company it owns in Poland, where low-paid workers started a work-to-rule. According to one commentator sympathetic to Mondragón:

The Polish struggle represents the dark underside of worker co-operation. Our movement can’t engage in the exploitation of workers even to protect other members of the co-operative or, worse, a nostalgic legacy. I don’t think that this means that Mondragón should simply accept worker demands; however, when the situation gets to the point of a work slow-down, work-to-rule, or all-out strike, it seems to me that a worker co-operative is no longer acting according to the principles of co-operatives or worker rights.12

MCC’s image suffered a further blow last November when one of its largest components, the domestic appliances manufacturer Fagor Electrodomésticos, was forced to declare bankruptcy. Fagor had run up debts of over one billion dollars during Spain’s severe and continuing economic crisis, and the Mondragón Group General Council decided it could not risk lending the company any more money. Attempts by Fagor’s management to persuade US hedge funds to invest in the co–op also fell through.

Almost 2,000 workers lost their jobs in the Basque region and another 3,500 were laid off from Fagor factories in France, China, Poland, and Morocco. MCC’s Corporate Employment Office offered the Basque workers help with finding work, but hundreds of them occupied one of the affected plants in Edesa and workers later formed a human chain outside MCC’s main office in Mondragón.13

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But the problem is not just that over time Mondragón has accommodated itself to the practices of the capitalist market in order to survive, as Luxemburg predicted. From the very beginning the co–op saw itself as providing an alternative to struggle against the system.

The Mondragón cooperative was originally the idea of a Catholic priest named José Maria Arizmendiarrieta who regarded class struggle as destructive and who hoped to overcome it not by directly challenging the power of the exploiting capitalist class, but by creating a small corner of the economy in which class differences no longer existed.

Marx, Engels, Lenin, and Trotsky long ago argued that socialism in one country is impossible because a socialist revolution that does not spread will either be crushed from the outside or survive by being transformed from within. Socialism in one workplace is even more of a non-starter, because the economic, political, and military power of the existing ruling class remains in place.

This was a point also made by Marx in his “Inaugural Address of the IWMA”:

At the same time the experience of the period from 1848 to 1864 has proved beyond doubt that, however excellent in principle and however useful in practice, co-operative labor, if kept within the narrow circle of the casual efforts of private workmen, will never be able to arrest the growth in geometrical progression of monopoly, to free the masses, nor even to perceptibly lighten the burden of their miseries.

Because co–ops by themselves do not challenge the system and may divert energy away from doing so, Marx noted that a variety of establishment figures had become supporters of co–ops:

It is perhaps for this very reason that plausible noblemen, philanthropic middle-class spouters, and even kept political economists have all at once turned nauseously complimentary to the very co-operative labor system they had vainly tried to nip in the bud by deriding it as the utopia of the dreamer, or stigmatizing it as the sacrilege of the socialist.

Even fascists have sometimes praised co–ops. In the 1960s, the labor minister of Spain’s fascist dictator General Franco awarded the Gold Medal for Merit in Work to Mondragón’s Arizmendiarrieta.14 Decades earlier, in fascist Italy, Benito Mussolini established the National Fascist Cooperative Agency (Ente Nazionale Fascista della Cooperazione) and encouraged the expansion of cooperatives in the farming and food processing sectors as a way to downplay class differences.15

So here is the paradox. Individual co–ops do not threaten the system, are likely to degenerate, and can absorb time and resources that could be used for other kinds of organizing. Yet, as Marx put it in his speech, “To save the industrious masses, co-operative labor ought to be developed to national dimensions, and, consequently, to be fostered by national means.”

What is missing from the strategy of establishing cooperatives is any way of achieving this bigger goal, because “the lords of the land and the lords of capital will always use their political privileges for the defense and perpetuation of their economic monopolies. So far from promoting, they will continue to lay every possible impediment in the way of the emancipation of labor.”

Economic democracy and workers’ self-management is absolutely central to any genuine socialist society, but they can only be permanently established by adopting a strategy aimed at dismantling the power of the capitalist state and expropriating the expropriators. In other words a political strategy, not one focused primarily on attempting to create alternative economic models within existing capitalist society.