Hans F. Sennholz’s 1985 Freeman article is a single-author libertarian political-economic essay. Its immediate target is the spread of state and municipal plant-closing laws, especially the Massachusetts statute signed by Michael Dukakis, which required severance-related payments and other benefits for displaced workers. Sennholz’s thesis is that these laws convert sympathy for workers into coercive levies on owners, misread the economic meaning of shutdowns, and finally discourage the investment that creates jobs.
Plant closings always impose painful costs on the participants—owners and managers, workers, local governments and local businesses.
That concession is crucial: the article does not deny suffering, but redirects attention to whose suffering counts in law and journalism. Sennholz argues that public debate vividly depicts workers, towns, and tax bases, while treating owners as a source of payments to be exacted. The opening section, “Need versus Greed,” reconstructs the moral case for regulation—worker need, an alleged duty to reinvest profits where they were earned, and legally protected job rights—then challenges it by emphasizing high-seniority union workers’ comparatively high wages and the ordinary savers behind corporate ownership.
In fact, a shutdown is a desperate measure designed to minimize losses and taken in frustration and despair about a hopeless situation.
This is the central reframing. A closing is not, for Sennholz, an act of predation but a defensive response to capital-consuming losses or returns persistently below market alternatives. He turns the argument from compassion to economic coordination: profit rates signal where consumers most urgently want scarce resources employed. To keep capital in declining uses is therefore to misallocate resources, reduce capital formation, and weaken future labor income.
The sections on reinvestment and consumer allocation develop the essay’s Austrian logic. Sennholz rejects the claim that profits must remain in the plant because workers earned them. His examples of the blacksmith shop and buggy factory stress that both capital and labor must move when technology, demand, and costs change. Production is not a class struggle over a residue, but a cooperative market process.
Production is cooperation in which each production factor receives income according to the value ascribed to its services by the supreme directors—consumers.
From this premise he attacks the socialist exploitation theory underlying residual worker claims to plant assets. Wages, interest, profit, and loss are distinct market outcomes, not evidence that one factor has stolen from another. The section on job rights then shifts from economics to law: union job rights appear as state-created privileges that protect organized labor from independent labor and recast income claims as “human rights” superior to property rights.
Unions claim “human rights,” which include the privilege to deny “human rights” to others.
The policy core of the article is the inversion that restrictions on exit become restrictions on entry. Sennholz compares plant-closing laws to capital traps in poorer countries: governments invite investment, then obstruct withdrawal. Mandatory severance, retraining, insurance, and community restitution payments raise the expected cost of failure, especially for new firms, volatile industries, and unionized sectors. Firms respond by avoiding restrictive states, substituting capital for labor, or not investing at all.
In the end, the law that means to prevent unemployment by order of politicians, judges and policemen, actually creates it.
The final sections turn to competitiveness. Sennholz insists that no statute can keep an uncompetitive firm alive if product quality, prices, labor costs, taxes, or returns on capital are wrong. For him, the most reliable job security is not legal compulsion but profitability and expansion.
Contrary to labor dogma, business profitability provides job protection.
His most contentious move is to place major responsibility for many closings on union wages, work rules, and government burdens. Lower labor costs and higher productivity, he argues, could save many plants; taxes and regulation often aggravate decline by refusing to relax as firms weaken. The essay’s relevance lies in its sharp free-market warning: employment-protection mandates may appear humane, but by increasing the penalties on failure they can reduce the openings, mobility, and profitability on which employment depends.
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