Real Social Security: Lagun-Aro

Another post from October 2007 after returning from Mondragon. The full series of posts can be found at Breathing Lessons by clicking on Mondragon in the tag cloud.

When Americans hear the word “Social Security”, we think of a failed pension system and Medicare. This program was originated during the New Deal of Franklin D. Roosevelt and expanded by Lydon B. Johnson to include the Medicare system. The fund has been raided many times to pay for wars (Viet Nam), and the political excesses of Reaganism. It is expected to be bankrupt by the time that I am eligible for the benefits in 2030. In Spain, the phrase means something quite different. When they say “social security” the really mean a complete safety net for people. The following are my notes from a visit to Lagun-Aro, Mondragon’s social security organization. It was created in 1959 when the Franco government determined that worker cooperators are “owners” and therefore ineligible for the government’s social security program. As usual, Mondragon responded with innovation and a determination to make life good for their workers.

We met with Anna, the Director of Communications for Lagun-Aro. This organization was set up in 1959 after the Franco government kicked the worker-owners of Mondragon out of the Spanish Social Security System. In 1967, cooperatives were admitted to the social security system, but Lagun-Aro negotiated with the state to reach a deal where they continued to manage the system for Mondragon workers with a reduced premium. From this point, Mondragon workers were included in both the state and cooperative system.
The main features of Lagun-Aro include:

  • Representative Democracy (1 representative/20 cooperative members)
  • Solidarity and responsibility (co-pays)
  • Management competitiveness
  • 6-8% difference in cost from social security system
  • Management of benefits and expense control
  • profits kept to a minimum
  • Constant Adaptation
  • Transparency

As of December 2006,

  • 29,858 active members
  • 62,173 beneficiaries (partners and children)
  • 7,759     pensioners (don’t pay premiums)
  • €135 million in benefits
  • €185 million in premiums
  • €3,626 million in the Fondo Partimonal (Equity Fund)
  • €275 million Net Revenue

Workers pay 34% of their salary as the premium! Roughly one-third goes to the state system (11%). The remainder goes to Lagun-Aro. In the Spanish system, the worker pays 20% and the employer pays 20%, so the Mondragon worker ends up paying only 35% by working through Lagun-Aro.

The system has two types of benefit categories: “pay as you go” and “accrual”

The Pay As You Go includes: Temporary Disability, Sick Days, Unemployment and other issues. The Accrual includes: Permanent Disability, Retirement and Pension.

In 2007, the General Assembly voted to keep medical care within the cooperative systems. The Spanish system is free; however, one can wait months for proper treatment.

For a US citizen, the benefits seem amazing: 100% pay for maternity leave, 13 paid days for paternity leave, Temporary Disability gives 80% of salary (after 4 months it jumps to 90%).

Unemployment gets a bit more interesting. At Mondragon, a worker may be offered work in a more productive cooperative rather than unemployment. This helps both the worker and the involved cooperatives (the coop in trouble keeps the worker on hold for when times are good, the coop that is growing gets a temporary worker until they can see how permanent the growth is and the worker keeps their job).

Culturally, the community is changing a bit from the early days. As a result, absenteeism is on the rise and this has caused some individual cooperatives to take steps to address the issues. At Fagor, for example, workers are not paid for the first day of sick leave, but then receive pay for the second and longer consecutive days.

The cooperative does pay employment insurance that would make any of us envious in the United States. Mondragon (through Lagun Aro) pays 100% of the workers salary for two years. The Spanish government pays 50% for 18 months. Lagun-Aro constantly runs comparison studies against the government’s plan. LA has better benefits and does it with less money.

I should add that the other benefit is not living in the United States. In Spain, as is true in most of Latin America, the Pharmacy still holds its position in society for being a true medical facility. In addition, the industry does not have a stranglehold over the market. Because of a mistake in packing, I had to purchase the generic version of Prilosec ® at a pharmacy. The month supply of Prilosec® cost less than my co-pay through my HMO in the United States and almost 1/5 of the cost for the brand-name in US stores.

In thinking about the health care, it is important to talk about phrases and costs. In the United States, workers pay 7.5% for Social Security and Medicare (which they do not have access to until they are 60 years old) and the employer pays 7.5%. In addition, the employer pays about 10% in payroll taxes for workers’ compensation and unemployment insurance. In my situation, I pay about 18.3% of my payroll for health, dental, and social security and my employer matches it (36.6% or my payroll). My employer pays another 10% of my payroll (46.6%). In addition, I have a combined temporary disability/term life that costs about 1% for a total of 47.6% of my payroll compared to the Spanish government’s 41% and Lagun-Aro’s 35%. However, their “social security system” includes Employment insurance, temporary disability, maternity and paternity leave, permanent disability, retirement, medical care, and a pension.

Essentially, Mondragon as a private sector organization provides better benefits for a cheaper price. It makes me wonder if Cooperatives should be exempt from paying these payroll taxes provided that they provided similar or better benefits for their workers.

There are two other interesting things about Lagun-Aro:

  1. It is a great example of workers making the best of a bad situation. I am sure that the Falangists thought that they have really screwed these Basque workers in Mondragon, yet they took the lemons and made lemonade (as they say).
  2. Once again, the culture of Mondragon which makes them constantly reinvent themselves and insist that they stay on the cutting edge.

About John McNamara

John spent 26 years with Union Cab of Madison Cooperative and currently helps develop co-ops in the Pacific Northwest. He holds a Ph.D. in Business Administration and Masters in Management: Co-operatives and Credit Unions from Saint Mary's University.
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