Managing Leadership^®

In his classic work, The Road to Serfdom, F.A. Hayek made the argument for the advantages - indeed, the necessity - of classical liberal capitalism over the forms of centralized economic planning that were distressingly popular in Europe after World War II. In one of my reviews of this book, I tried to explain why I thought it was essential reading for managers.

Some readers were intrigued by the suggestion that the field of economics might be of value in this way. But think about it: what do managers of people really do? They try to organize individuals in collaborative enterprises in such a way that their interests coincide sufficiently to accomplish the work of the organization. Indeed, the managers’ own interests need to be so aligned in order to help assure that this happens.

Sure, managers used to treat people like any other asset, simply ordering this many of that sort and then issuing instructions for their employment. Many still do. But the problem is that this compares with the centralized planning approach, which assumes that the planners know better than everyone else what ought to be done and how.

Today, more managers are learning to sow the seeds of decentralization and less control in order to reap the winds of innovation and productivity, trying to direct these winds into their organizational sails. They generally attempt it by what many call “leadership.” But that, itself, is highly problematic, as we saw in our recent series on the topic.

I think it is of great benefit for managers to put the management books aside now and then, in order to gain insight about their work from other fields. In particular, there is much value in a careful consideration of how one might apply the ideas of capitalist economics to management.

You are likely aware that three economists have just won the Noble Prize for their work on a theory called “mechanism design.” This is the study of ways to structure the economy, as well as the factors acting on it - from interest rates and markets to regulation and taxation - so that its free operation produces the desired, targeted results. Consider how this piece about the award from The Economist describes the theory:

It goes to the heart of one of the biggest challenges in economics: how to arrange our economic interactions so that, when everyone behaves in a self-interested manner, the result is something we all like.”

Wouldn’t you, as a manager, like to be able to so arrange your organization’s interactions so that everyone’s self-interested behavior produced results you all liked?

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Today’s Tip: In addition to The Economist piece cited above, take a look at this commentary about the award published in the WSJ; the author does a great job of tying the recipients’ work to the principles of free-market capitalism as expressed by Fayek.

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