In the late 18th century a man named Pareto was going around his pea garden and noticed something odd. He noticed that only a small number of pea pods produced the maximum peas. He was an economist and a mathematics lover. This observation of his led him to think whether this unequal distribution happens in other fields also.
As he was from Italy so he started with his country. He studied the wealth distribution of his country and to his surprise he found that 80 percent of the land of Italy was in the hand of 20 percent people. He studied the wealth distribution of Britain and found that 30 percent of the people held 70 percent of the British wealth. He studied about other countries and a pattern started to emerge. Like the pea pods of his garden, the resources are concentrated in the hand of the few. He found that though the numbers varied a bit but the pattern was same everywhere- a minority portion held the majority of rewards. This came to be known as the Pareto principle, what today we popularly call the 80/20 principle.
His idea has now become a gospel for economists. This idea opened up the world’s eye. Now an example of this is found in all spheres of life.
80 percent of the defects in products are caused by 20 percent of the machinery. So if that 20 percent of defect is rectified then the overall quality of the product would increase.
In business it was found that 80 percent of the sales came from 20 percent of the customers. Also 20 percent of the employees gave 80 percent of the output for a company. 20 percent of the efforts give 80 percent of the project results. So if business owners or managers give 80 percent of their time on that important 20 percent then it would yield better result.
In investing also it is that 20 percent of the portfolio that gives 80 percent of the returns. On the opposite, 20 percent of investment can ruin to returns generated by 80 percent of the portfolio. In the stock market it is the 20 percent of stocks that boost the index.
In our life also that 20 percent of time gave 80 percent of the productive output of the day.
In your life you are lucky if you are devoting 20 percent of the time to things that give you 80 percent happiness. Or are you giving 80 percent of the time on things which give you only 20 percent happiness.
Out of your friends and acquaintances out of the 80 percent only 20 percent are those with whom you will feel close.
Out of all 80 percent of your clothes you will find 20 percent are you favorite ones.
In sports also 80 percent world cups are won by 20 percent of the countries.
10 percent of the world population hold 80 percent of the wealth.
In every aspect this rule applies though the proportion may vary a bit.
Another aspect
The Amazon rain forest has about 16000 varieties of trees recorded. But scientists have noticed that only 227 varieties cover 50 percent of the rain forest. That makes 1.4 percent of the tree species dominating 50 percent of the forest. But why it is so?
Imagine 2 different varieties of trees are planted in a jungle; both will try to get the most of sunlight. The one which will get a little more sunlight will grow faster and subsequently it will be taller and healthier than the other tree. The healthier tree will be in a better position to spread its seeds and reproduce faster. This process through generations of growth will ultimately dominate the majority of the forest. Scientists have named it the accumulative advantage. A small advantage at an early stage becomes bigger and bigger and the gap increases.
Similar is in our life. We are fighting for the limited resources. A large number of unemployed people are fighting for the same jobs. Politicians are fighting for the same votes, authors are competing for a spot in the top seller list, and sportsmen are competing for the podium. Television channels are fighting to get your prime time attention. All this is happening because the reward is immensely outsized.
The swimmer who wins the world championship by 1/100 th of a second will get the gold medal and later on the most lucrative endorsements. If 50 candidates are applying for a single job then the one who will do slightly better than the other will take it all.
In our life we will face both the situations – the winner take all and the competition for limited resources. If you are 1 percent or 2 second or 1 dollar better then you will get 100 percent of the victory.
This winner take all in individual life lead to winners take most in the broader life. With your win in one competition or one political election, now you will be in a better position for the next competition or next election. This slowly converts into the 80/20 principle in broader life.
If you can get one book in the best seller list then more people will like to read your next book. Publishers will also do better marketing for your next book. This way it will be easier for you to hit that bestseller list again. For this reason you will see only few authors are able to sell millions of copies and the rest struggle for selling even a few thousand.
A slight edge in a completion can give compounding returns in future. So in life and its challenges try to be slightly better than the others, a slight edge today, tomorrow and the next day will slowly give you better results and those small advantages will put you ahead in life.
I wonder what the pea pods are used of