Managing Leadership^®

In a post last week entitled “The invisible hand,” I presented the argument that much of history today is driven by the debate between the varying approaches to societal and economic organization characteristic of Europe and the United States. In its very efforts to promote social welfare and equality, the European centrist system is falling short of the gains in these same areas achieved by the individualistic and free-ranging American capitalist model. This discussion was occasioned by an insightful piece in the Wall Street Journal by Johan Norberg, a fellow at the Center for the New Europe.

In the course of the argument, I went on to suggest that this very capitalistic spirit is a powerful motivating force behind the ideas about organizational leadership that I promote; in particular, the concept of leadership from within.

Now, there comes along an excellent article in today’s WSJ, by Edmund Phelps, just announced as the winner of this year’s Nobel Prize for economics. He makes the same point about the essentially self-defeating, sclerotic, top-down altruism characteristic of the typical European approach to organizing society and running an economy.

But in doing so, he makes a few intruiging references that I believe support my parallel contention that a “capitalism of initiative and ideas” might be a fruitful way for executives to approach the management of organizational leadership. Consider the following:

Friedrich Hayek, in the late 1930s and early ’40s, began the modern theory of how a capitalist system, if pure enough, would possess the greatest dynamism–not socialism and not corporatism. First, virtually everyone right down to the humblest employees has “know-how,” some of what Michael Polanyi called “personal knowledge” and some merely private knowledge, and out of that an idea may come that few others would have. In its openness to the ideas of all or most participants, the capitalist economy tends to generate a plethora of new ideas. [bold emphasis mine]

The core purpose of Professor Phelps’s article is to defend what is sometimes called Anglo-Saxon capitalism, which he believes unleashes the entrepreneurial spirit in ways that benefit not merely the individual entrepreneur, but society as a whole and virtually everyone in it.

But consider the emphasized text in the quote: it is precisely this phenomenon that is the norm in innovation, particularly in growing and larger enterprises. Insight and even (especially) vision don’t come from the singular leader at the top – they come from the people in daily contact with how things work – not necessarily as a bolt from the blue to a disconnected individual. Sometimes the insight strikes that way, but sometimes it’s always there in the everday awareness of the employee; it just goes undetected, under-regarded, and untapped by management.

Next, this:

The challenges that arise in developing a new idea and in gaining its acceptance in the marketplace provide the workforce with high levels of mental stimulation, problem-solving, employee-engagement and, thus, personal growth. Note that an individual working alone cannot easily create the continual arrival of new challenges

Here, Professor Phelps is contrasting the aspirations of European societal engineers to provide fulfilling lives for their citizens with what is often the fact that where this tends to actually happen is in the more entrepreneurally dynamic Anglo-Saxon economies. But consider as well the implications of this insight for managing organizational leadership. “Empowered” workers aren’t merely more motivated and productive – they tend to be more involved and organizationally creative. That – and not the European-style imposition of initiative from above – is the stuff of leadership.

One final citation:

A tremendous confusion is created by associating “capitalism” with entrenched wealth and power.

Those (admirably) concerned with the welfare of the average citizen tend to counterpoise images of virtuous, shirt-sleeved “Labor,” manfully wielding the tools of production to provide for society and for his adoring and dependent wife and family, with that of ruthlessly obese “Capitol,” a cigar grasped in one hand and a bulging bag of bullion in the other. But that isn’t the real face, Professor Phelps argues, of the entrepreneur. He or she is, in a dynamic economy, everyone – all of us: owner, manager and employee – engaged and drawing both material and psychic reward in innovating in the workplace and improving our circumstances.

But discussion of leadership is just as confusing, and identification of “the leader” is just as erroneously attributed to a singular individual at the top. Just as the innovative entrepreneur is potentially all of us (and in a dynamic economy that potential more nearly approaches reality), so does leadership – in an intelligently managed organization – exist everywhere and express itself through all of us.

The modern world is slowly moving away from antiquated concepts of societal organization that, it must be said, are based on patenalistic notions of the “enlightened” elite providing (often mandatory) guidance for the “benighted” masses. Today, the invisible hand of self-interest is releasing the wisdom and innovativeness of all of us in everything from our political systems to our commercial enterprises.

At the same time, we must abandon out-dated ideas about individual leadership – together with their concomitant assumptions about the natural, inherent superiorities of the booted class of people from whom these individual leaders presumably arise. We must learn to allow leadership to thrive from within. We must learn not to provide it, but to manage it.