“European Malaise” — Summary

Hans F. Sennholz’s “European Malaise” is a brief single-author political-economic essay, dated February 1997. Its scope spans post-communist Eastern Europe and the welfare states of Central/Western Europe, but its organizing thesis is one: Europe’s hardship flows from interventionist policy, especially labor mandates and welfare-state transfer systems, which are misnamed “social progress.” It is a diagnostic polemic in Austrian/free-market style, structured as a movement from observed misery, to causal explanation, to demolition of rival explanations, and finally to a warning for Americans.

Eastern Europe is treated as a zone of painful transition from communist rule to private property. Sennholz emphasizes deficits, inflation, currency depreciation, and state sectors that drain emerging private enterprise. In this setting, illegal or semi-legal market activity appears less as deviance than as the residue of economic life under political suffocation.

If it were not for the “informal sector,” that is, the underground economy in which people labor without license, permit, taxation, and political approbation, many would suffer grievously.

The essay’s main force, however, falls on Western and Central Europe. Sennholz recasts welfare-state achievements as cost burdens placed on employers and therefore on marginal workers. Benefits, privileges, and regulation push firms toward machines, foreign locations, underground activity, or exit. His deliberately paradoxical formula is the essay’s governing image:

In Central and Western Europe the old welfare states are choking on their own “social progress.”

His economic reasoning turns on the relation between compensation and productivity. High hourly labor costs do not by themselves explain unemployment; they become destructive when law and policy raise total labor cost above the worker’s productive contribution. Thus the labor-cost figures he cites for Germany, France, Italy, Britain, Spain, and the United States serve a marginalist argument, not a mere comparison of national wage levels.

Yet, no matter how high the labor costs may be, they do not cause unemployment provided they do not exceed labor productivity.

The central causal claim is then stated without qualification. Sennholz identifies the welfare-state expansion of the 1970s and 1980s—higher Social Security benefits, employer levies, and rigid labor-market rules—as the mechanism by which “compassionate” policy removes the least productive workers from employment, deepens stagnation, enlarges deficits, and consumes capital.

The root cause of Europe's economic predicament is the oppressive burden of fringe benefit costs imposed on business during the 1970s and '80s.

A second conceptual move is political-cultural: policy persists because public opinion moralizes its own errors. Hope must be grounded in sound opinion, he argues, but Europeans continue to demand more “progress” even as unemployment rises. This makes reform unlikely, since politicians and economists defend the system as democratic virtue despite its visible victims.

What the multitude says is so, soon will be so.

The later sections eliminate competing explanations. Sennholz treats fear of computer technology as neo-Luddism, protectionist attacks on low-wage countries as scapegoating, anti-immigrant politics as displacement of blame, and job-sharing schemes as a fallacy that assumes work is a fixed stock. He sees shorter weeks, longer vacations, earlier retirement, and exclusionary rules as efforts to reduce output in the hope of increasing employment.

They all are to live by a new theory according to which the demand for labor increases as labor output decreases.

Complaints about “strong currencies” receive the same treatment. Swiss and German monetary authorities, he says, are already easing aggressively; currency policy cannot repair a real-cost problem rooted in labor mandates and regulation. The essay closes by turning Europe into a warning for the United States, especially for readers tempted to admire European social protections without counting their employment effects.

Many Americans who do not learn by inference and deduction have an opportunity to learn from European experience.

“European Malaise” remains relevant as a compact statement of Sennholz’s free-market diagnosis of unemployment: coercive benefits and mandated protections can price workers out of jobs while retaining the language of compassion. Its structure is eliminative as much as explanatory: after naming the welfare state as cause, it strips away technology, trade, immigrants, job sharing, and money as diversions. The core thesis is not merely that intervention has costs, but that the most celebrated forms of social policy may harm the very workers they claim to protect.