‘The Pareto Principle’

Share This Post

14th June, 2023

Sometime in the late 1800s—nobody is quite sure exactly when—a man named Vilfredo Pareto was fussing about in his garden when he made a small but interesting discovery.

Pareto noticed that a tiny number of pea pods in his garden produced the majority of the peas.

Now, Pareto was a very mathematical fellow. He worked as an economist and one of his lasting legacies was turning economics into a science rooted in hard numbers and facts. Unlike many economists of the time, Pareto’s papers and books were filled with equations. And the peas in his garden had set his mathematical brain in motion.

What if this unequal distribution was present in other areas of life as well?

At the time, Pareto was studying wealth in various nations. As he was Italian, he began by analyzing the distribution of wealth in Italy. To his surprise, he discovered that approximately 80 percent of the land in Italy was owned by just 20 percent of the people. Similar to the pea pods in his garden, most of the resources were controlled by a minority of the players.

Pareto continued his analysis in other nations and a pattern began to emerge. For instance, after poring through the British income tax records, he noticed that approximately 30 percent of the population in Great Britain earned about 70 percent of the total income.

As he continued researching, Pareto found that the numbers were never quite the same, but the trend was remarkably consistent. The majority of rewards always seemed to accrue to a small percentage of people. This idea that a small number of things account for the majority of the results became known as the Pareto Principle or, more commonly, the 80/20 Rule.

Inequality, Everywhere

In the decades that followed, Pareto’s work practically became gospel for economists. Once he opened the world’s eyes to this idea, people started seeing it everywhere. And the 80/20 Rule is more prevalent now than ever before.

The numbers are even more extreme in soccer. While 77 different nations have competed in the World Cup, just three countries—Brazil, Germany, and Italy—have won 13 of the first 20 World Cup tournaments.

Examples of the Pareto Principle exist in everything from real estate to income inequality to tech startups.

Why does this happen?

Why do a few people, teams, and organizations enjoy the bulk of the rewards in life?

The difference to a large extent can be explained by

‘The 1 Percent Rule’ which states that over time the majority of the rewards in a given field will accumulate to the people, teams, and organizations that maintain a 1 percent advantage over the alternatives.

You don’t need to be twice as good to get twice the results. You just need to be slightly better.

The 1 Percent Rule is not merely a reference to the fact that small differences accumulate into significant advantages, but also to the idea that those who are 1 percent better rule their respective fields and industries.

Thus, the process of accumulative advantage and / or the power compounding, over a length of time is the hidden engine that drives the 80/20 Rule.

A little extra will give you an extraordinary advantage over time.

Just do that little extra, get the 1% advantage & stay blessed forever.