1) The top knows what the organization is capable of and can set achievable goals 2) That the bottom is incentivized to do things that achieve the goals of the company

A manager being technical helps #1, information flows upward more accurately.

I think #2 is more nuanced, but when you have a boss, you are directly incentivized to please the boss, not directly incentivized to achieve the goals of the company. Those can be different things and the less technical a manager is, the more different they can be.

This isn't an argument for just promoting individual contributors, though, since lacking management skills also makes both of these problems worse.

It is an argument for flatter organizations. Maybe that's a better way to look at it, every layer of management makes 1) and 2) more difficult. (A fully flat organization wouldn't have either problem at all.) But if a manager has both management and technical skills, it's more of a partial management layer.