eas, which he collected in his garden, forced to engage his “mathematical brain.” What if this unequal distribution was present in other spheres of life? Wilfredo Pareto in the 1870s. The photographer is unknown. Pareto principle At that time, Pareto was studying the welfare of various countries.
As an Italian, he decided to start analyzing the distribution of wealth from Italy. To his surprise, he found that about 80 percent of Italian lands belonged to only 20 percent of people. It turned out that most of the resources were concentrated in the hands of the minority.Pareto continued to analyze other countries, and soon a coherent picture began to emerge.
For example, digging into the tax accounting of Britain, he noted that about 30 percent of the UK population earned about 70 percent of the total income. After some time, Pareto found that only the figures differed, and the trend remained unchanged. Most of the awards seemed to always go to a small percentage of people. The idea that a small amount of effort (20%) yields most of the results (80%) became known as the “Pareo Principle”, or “Rule 80/20”. Inequality is everywhereIn the decades that followed, Pareto’s work became almost a “Gospel” for economists. As soon as he opened the eyes of the world to this idea, people began to see her everywhere. Odniko today, “Rule 80/20” has become the most widespread.
For example, during the 70th season of the National Basketball Association (2015-2016), almost 76 percent of awards went to just 20 percent of franchises. Moreover, only two franchises – “Boston Celtics” and “Los Angeles Lakers” – have won almost half of all championships in NBA history. As in the case of Pareto peas, most of the awards are given to a small number of teams.In football, the same trend is observed. 77 teams from different countries fought for the “World Cup”, but only three countries – Brazil, Italy and Germany – managed to win in thirteen of the first twenty World Cup tournaments. Examples of the Pareto principle can be found in any area, from real estate to income and technological start-ups. In the 1950s, 70 percent of the land of Guatemala belonged to three percent of people.
In 2013, 8.4 percent of the world’s population controlled 83.3 percent of world wealth.
In 2015, one search engine, “Google” had 64 percent of search queries. Why is this happening? Why are only a few people, teams and organizations allowed to enjoy the majority of awards in life? To answer this question, let’s look at an example from nature.The strength of the cumulative advantage of the Amazon rainforest is one of the most diverse ecosystems on Earth. Scientists have counted about 16 thousand different species of plants growing in the Amazonian jungle. But, despite such a huge variety, about 227 species of trees are “hyper-dominant”, which make up almost half of the forest. But why?Imagine two plants that grow side by side.
Every day they will compete for sunlight and soil. If one plant begins to grow a little faster than another, it can grow taller and will receive more sunlight and absorb more rain. This energy will allow it to grow even faster.
This continues until the stronger plant replaces the other and captures the lion’s share of sunlight, soil and nutrients. Staying in such a favorable position, the plant has a better ability to spread seeds and reproduction, and this can not but affect positively on the next generation. This process is repeated again and again until the plants that are more viable than others, will not occupy the entire forest.Scientists call this effect a “cumulative advantage”.
A small advantage over time turns into a huge. One plant needs a small advantage at the very beginning to drive out competitors and capture the entire forest. The winner gets everything. Something similar happens in our life. Like plants in the rainforest, people often compete for the same resources.
Politicians are fighting for the votes of voters. Writers want their works to be at the top of the list of bestsellers. Athletes compete for the gold medal. Companies compete for potential customers. Television shows tend to get as much of your attention as possible.The difference between these options can be subtle, but ultimately, the winners get unreasonably huge rewards.
Imagine two women competing in the Olympics. One of them swims 1/100 of a second faster than the other, so, ultimately, he will win a gold medal. Ten companies compete for the same client, but only one of them will manage to get the project. To get a reward, you need to be a bit better than your competitors. Or imagine that you are applying for a position together with two hundred other candidates. To the employer chose you, you need to be a little better than other applicants.
These are situations in which small differences in performance lead to unreasonably huge rewards, or the “Winner takes all” effect. It usually occurs in situations that involve a relative comparison; in them the determining factor of your success is what distinguishes you from others in terms of productivity. Not everything in life is a competition of the type presented above, but almost every sphere of it – at least in part – suffers from limited resources.
Any decision that involves the use of a limited resource like money or time will naturally lead to the emergence of the situation “The winner gets everything”.In such situations, the fact that you are slightly better than your competitor can lead to unreasonably huge rewards for the simple reason that the winner receives everything. One percent, one dollar, one second is something that can help you win a one hundred percent victory. To be slightly better than competitors means to get not just a small part, but the whole reward. The winner gets one, and all the others – zero. The “Winner gets all” effect results in the winner getting most of the “The winner gets everything” effect in the individual race can lead to the “Winner gets the most” effect in a larger game of life.
From this advantageous position – having a gold medal, a certain amount of money in a bank account or any position – the winner begins the process of accumulating advantages that will allow him to easily win the next time. If one road is a little more convenient than the other, then more people will ride it. Consequently, more companies will tend to build their businesses along it. With the emergence of a larger number of enterprises, people will have additional reasons to use this road, so it will become even more lively. And, ultimately, you will come to the following conclusion: “20 percent of the roads take 80 percent of the traffic.
“If a company offers technology that is more innovative than others, it means that its products will be bought by more people. After she manages to earn more money, she can invest in additional technologies, pay higher salaries, hire the best specialists. By the time, as other competitors are tightened, customers will have a lot of reasons not to change their initial choice. Thus, one company becomes dominant in one or another industry.When a writer enters the list of best-selling authors, publishers become more interested in his next book. When this book is born, they will invest in its promotion more money and resources, so that it again falls into the list of bestsellers. Soon you will begin to understand why some books are sold in millions of copies, and others can not sell and in the number of several thousand copies. The difference between good and great is narrower than it seems.
What initially represents a small advantage over competitors, with each challenge is growing. Winning one competitive struggle increases the chances of winning the next one. Each additional cycle strengthens the status of those who are above.Over time, those who are slightly better than others, in the end receive most of the awards, and those who are slightly worse – nothing. This idea is sometimes called the “Matthew Effect”, referring to a passage from the Bible, which says: “..
. for whoever has, to him will be given and will multiply, and whoever does not, from him will be taken away and that which he has.” Now let’s return to the question that was asked at the very beginning of the article. Why do only a few receive most of the awards? One-percent rule Small differences can lead to unequal distribution. This is another reason why habits are so important. People and organizations that regularly do the right things have more chances to retain a small advantage and eventually receive a disproportionate reward.
You just need to be better than your competitors, but if you are able to keep your small advantage today, tomorrow, the day after tomorrow, then you will be able to repeat the process of achieving victory, with only a little extra effort. This can be called the “Rule of one percent.” It says that over time, most awards in any particular field will be concentrated in the hands of people, teams and organizations that retain a one-percent advantage over alternative options. You do not need to be twice as good to get twice the best results. You just need to be a little better.