What Adam Smith Can Teach the Aspiring Leaders of Today

Smith warned about centralized planning and control at the scale of the economy as a whole, but the same logic can apply to any organization.

Over the course of your career, you will likely encounter a number of different bosses, some good, and some not so good. Eventually you may find yourself in the position to lead others, perhaps on a project team, or even in a direct supervisory role. Assuming a management position can seem like a daunting task. Of course, everyone wants to be a good boss, but not everyone is a good boss.

Management within an organization is a multi-faceted role, with many opportunities for error. One particular pitfall that new managers make as they transition from completing work to directing the completion of others’ work is the refusal to relinquish control. Here we can learn from the great economist Adam Smith, from his Theory of Moral Sentiments, where he describes the “Man of System”:

“The man of system, on the contrary, is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board.”

Smith was warning about centralized planning and control at the scale of the economy as a whole, but the same idea can apply to the organization, or even a complex project. Attempting to control everything from the top down invariably results in unintended consequences and disharmony.

Micromanagement Leads to Disorder

Micromanagement is one way that people try to exert control. Imagine that you have a boss that loves to micromanage everything. You likely have a certain way that you want to approach the completion of your work, yet your boss insists on imposing constraints on the way you execute your tasks. Constantly monitoring the work of their employees, micromanaging bosses are demotivating for workers. Just like Smith’s Man of System, the micromanaging boss wants a job done a specific way and expects everyone to carry out that particular vision. Smith continues:

“He [the man of system] does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably, and the society must be at all times in the highest degree of disorder.”

Of course, sometimes within an organization there needs to be policies and instructions that flow from the top down. But managers run into problems when they don’t let information flow back up from the bottom to the top. Good management requires feedback and flexibility, where every employee has the freedom to make decisions and solve problems on their own – in Smith’s terms, when each piece on the chess board follows the principle of motion of its own.

Recognize the Limits of Your Knowledge

Flexibility is important because of our own lack of knowledge. When management governs by top-down, centralized, and inflexible rules, imposing their will on those below them, the system breaks down. As the size and complexity of the organizational system increases, the likelihood that any one person possesses all of the necessary knowledge to successfully accomplish all tasks goes to zero. Just as F.A. Hayek noted in his essay, The Use of Knowledge in Society, knowledge “never exists in concentrated or integrated form,” but rather is decentralized and exists as “dispersed bits of incomplete and frequently contradictory knowledge” held by many different individuals. Smith comments on the widely dispersed and deeply individual nature of knowledge in The Wealth of Nations:

“What is the species of domestic industry which his capital can employ, and of which the produce is likely to be of the greatest value, every individual, it is evident, can, in his local situation, judge much better than any statesman or lawgiver can do for him. The statesman, who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.”

So, what can we learn from Adam Smith about management?

  • First, good managers cannot control everything like pieces on a chess board. Instead, managers need to communicate the vision and requirements, but let work be planned and carried out by the employees.
  • Moreover, there needs to be feedback mechanisms in place to allow for employees to voice concerns and propose solutions when things are not going well.
  • Flexibility is key. There are multiple paths to get to the same goal, and micromanaging the process is counterproductive and leads to internal strife.
  • Finally, managers need to be humble about how much knowledge they really possess. Instead of thinking they know it all, good managers know when to rely on the dispersed knowledge of their team.

As you embark on a leadership role within your own career, it is helpful to keep an open mind, seek advice and mentorship, and learn as much as you can about management and leadership. There is no shortage of books, magazines, and websites dedicated to the topic.

And while it is good to consult modern sources, don’t forget the management lessons articulated by Adam Smith over 200 years ago.