In the late 19th century, economist Vilfredo Pareto demonstrated in his first academic paper that, in his native country of Italy, 20 percent of the population owned about 80 percent of all the land. Pareto then noticed the same pattern of distribution in his garden, where he found that 20 percent of the pods contained 80 percent of the total peas. Named after Vilfredo himself, the Pareto principle, also known as the 80/20 rule or the law of the vital few, is one of the most widely seen statistical phenomena in the world, seemingly evident on both the largest of macro levels (entire country wealth distributions) to the smallest of micro levels (amount of peas in a peapod).
An overarching theme that can be drawn from many of the significant scientific discoveries of the last few centuries is that the universe, just like human society, appears to be governed by laws. These laws direct and determine the presence and behavior of all we know and surely a lot that we do not. The Pareto principle is a natural law that can be found in a variety of fields, from science to sports and health care to crime.
Over time, data has been collected that has shown traces of the Pareto principle across the world. It has been shown that 20 percent of patients in the U.S. use 80 percent of health care resources and that 80 percent of crimes are committed by 20 percent of criminals (the Dunedin Study). It appears that when there is a lot of something, the top fifth of the population somehow gets it. But the most evident (and discussed) application, I believe, is in economics, specifically in wealth distribution.
In a recent lecture, Dr. Jordan Peterson discussed the Pareto principle and a similar phenomenon known as the Matthew effect, which is the idea that “the rich get richer and the poor get poorer.” Peterson connected these phenomena to their possible biblical origins, citing Matthew 13:12 (“Whoever has will be given more, and they will have an abundance. Whoever does not have, even what they have will be taken from them”).
In his lecture, Peterson makes two very interesting points about the distribution. The first is that the phenomenon applies not just to money or other tangible assets, but apparently even to intangibles, such as creativity. Artists already achieving success in their medium often tend to continue their success. It’s why there are millions of aspiring musicians on SoundCloud, but only a few headlining spots at Lollapalooza every August. Even these spots are often revisited multiple times by the same artists, achieving what appears to be perpetual success.
The second point Peterson makes is that most of the overall wealth ends up in a few hands, however, it is the proportion that remains the same, not the specific people in the 20 percent. Peterson states it is not the same 20 percent of people holding onto 80 percent of wealth forever, but it’s instead an ever-changing group of individuals within that top fifth.
Is such a distribution of resources and wealth completely fair? No, it’s not, but I am not sure there is anything a country could do to change it, at least in a way that would benefit all members in the long term. The 80/20 rule provides useful strategic direction to many businesses, some of which live by the rule that 80 percent of revenues come from 20 percent of customers. When applied in this context, it makes sense that the most loyal and consistent customers provide the most revenue, but when applied to macro-level economics, one might scream something vague about systemic inequity or “the system.”
If such a phenomenon is found on a level as small as individual peapods, what makes us think we will be able to change it? It appears this phenomenon permeates all levels of existence, woven into the fabric of our world.
Andrew Hall is a UF management senior. His column appears on Fridays.
