Pareto and the Pyramid of Power

The year 2006 marks 100 years since Vilfredo Pareto noted that 20% of the population owned 80% of the property in Italy. This conclusion combined with the analysis methods that support it led to the formulation of the “Pareto Principle.”

The tools and techniques associated with this principle have widespread application in circumstances where a small subset of one category causes a significant effect within a large subset of another category. During his work with industry, Dr. Joseph Juran coined the phrase, “the vital few and trivial many,” to describe the effect of the Pareto Principle in the business setting. For example, a company has a staff of ten sales representatives. Of the ten, the three highest performers generate 60% of the sales made during a reporting period, the five middling performers bring in 35%, and the two lowest performers contribute only 5%. Armed with this information, responses can be developed that are tailored differently for each of the three groups in an effort to increase overall sales performance for the least investment or cost. Another example is in a set of 100 manufacturing operations where the overall defect rate is .1%. There are 10 operations that cause 90% of the defects. Addressing those 10 are going to have a much more positive effect on the performance of the whole than focusing attention on combinations of the remaining 90 operations. Like most rules of thumb, the Pareto Principle can be misused; but in general it helps prioritize activities, separate the important from the pesky, and focus limited energy on the items that are going to make the most difference.

The Pareto Principle had it birth in economics, a social science. Given this background, there is another application for the Pareto Principle that covers additional ground. When this basic postulation – a small percentage of the population owns a large percentage of the property – is bracketed by two corollaries – a small percentage of the population enacts and enforces a large percentage of the rules that govern the behavior of the overall system and a small percentage of the population receives a large percentage of the compensation awarded by the total system – the resulting triad describes a fundamental truth about social systems: a small percentage of the population controls a larger percentage of the power within the whole system.

The exercise of power in a social system establishes an individual or group in a dominate role and subordinates the larger population of individuals or groups within that system. The population size can range from two – one person in relationship with another as in a marriage – to one over millions as in a country ruled by dictatorship. Regardless of population size, structure is required to maintain a requisite level of control over myriad dominate-subordinate relationships in the system so that the system persists. This structure is hierarchy.

Hierarchical social systems impact the people within them in three key ways:

  1. Each person belonging to a hierarchical social system has hierarchical relationships with all others in that system
  2. Each person has concurrent membership in multiple hierarchical social systems and can hold positions at different levels from one hierarchical social system to the other
  3. All hierarchical social systems concentrate power in the hands of a select few.

The universal symbol for a hierarchical structure is the triangle. Authority is held at the top, then distributed in varying degrees, level by level from the top to the bottom. However, a more appropriate geometric symbol for a social system is a three-sided pyramid (reference image below). One side of the pyramid is the hierarchical structure of governance. People participate in governance by making / changing the rules, enforcing the rules, and obeying the rules. Of course, there are always those who choose not to obey the rules. They are subject to some consequence levied by those who enforce the rules in the interest of what is called justice. The net result is that only a few operate at the top of the governance triangle to set and manage the rules while the clear majority obeys.

Another side of the pyramid is free enterprise. People participate by doing work that adds value for which they are compensated. They exchange that compensation for other goods and services they need and want. Wrapped up in free enterprise are concepts of property and ownership, money and capital, business and entrepreneurship, markets and customers. Wealth, in the form of assets, rests in the hands of a few.

The third side of the pyramid is affiliation. People participate by joining different groups and organizations which represent shared beliefs and ideals, customs and traditions, principles and values. These groups carry out activities that promote “causes” shaped by their worldviews. They provide forums for members to have voice and presence concerning their perspectives and interests. Those having the greatest access and influence are those who have the highest positions in the hierarchies of these organizations and represent the strength in numbers or vantage point of their memberships.

These three arenas: governance, free enterprise, and affiliation define the landscape in which organized human endeavor is conceived and carried out. The pyramid they form is a pyramid of power that develops and deploys human intelligence, energy, and skill to build, adapt, and sustain civilizations. While the three are vitally important as standalone systems, the interrelationships among them determine the effectiveness and efficiency of the whole. People vote for their leaders in governance. People make and buy based on supply and demand. People form non-governmental organizations to give body and shape to their views and interests. People derive power from the pyramid in unequal portions from the three triangles but regardless of the combination, the power they get is sufficient to stay in the system and work together so that the system persists.

Originally posted to New Media Explorer by Steve Bosserman on Saturday, December 10, 2005

Tackling Population Density, Diversity, and Disparity

Dateline: 4 November 2005, a NY Times editorial by Thomas Friedman entitled, “From Gunpowder to the Next Big Bang” outlines how China is grooming entrepreneurs to increase the rate with which business opportunities are identified and acted upon.

Dateline: 28 October 2005, an article by Howard W. French entitled, “China Luring Scholars to Make Universities Great,” describes how China is making a concerted effort to beef up their academic institutions with rigorous, cutting edge research capabilities and open the door to more discoveries, inventions, and innovation.

Dateline: 26 October 2005, an editorial by Thomas Friedman entitled, “Living Hand to Mouth” explains how China is rapidly pushing the limits of sustainability by incurring heavy societal penalties in air and water pollution, deforestation, and loss of arable land to support the growth rate it has enjoyed over the past 10 years.

Other than being about China, what do these articles have in common? They highlight three essential tasks society is required to address as we come closer together as a global community.

First, population density. As the world’s population continues to grow, more and more people will choose to live in metropolitan areas. China has over 40 cities exceeding 1M population with the most populous being Shanghai at almost 10M. India boasts 35 cities with populations over 1M, the most populous being Mumbai at just over 16M. Cairo, the most populous city in Africa, has a population of almost 7M. Sao Paulo, Brazil, with over 10M, is the most populous city in South America; whereas Mexico City, at almost 9M, is the most populous city in North America. More especially, counting the greater metropolitan area for Mexico City, the total population stands at over 17M making it one of the densest population concentrations in the world! How do people have a quality of life in such densities? Certainly, the migration of people to these population centers will only continue. The question begs answers.

Second, population diversity. As people migrate from one area to another in an effort to improve their lot in life, they encounter those from other races, ethnicities, languages, cultures, religions, etc. The United States is a nation forged by those who came to the country in hundreds of immigrant waves across a 500+ year history. The U.S. is not alone. All countries experience migration patterns through emigration and immigration coupled by varying degrees of mobility within their borders that sees people move from one rural or urban location to another. These migratory changes are unstoppable, but not always welcomed. The consequences range from an inappreciation and nonacceptance of difference to outright conflict and bloodshed as incompatible groups find themselves in one another’s space. How do people learn to live together when they come from different places and have differing beliefs? This diversity will only continue. The question begs answers.

Third, population disparity. As people find themselves in the presence of others outside their native groups, they are confronted with a reallocation of power and resources – the pecking order is reordered. Depending on relationships with people new to the mix, this reordering takes away or grants influence. There will be winners and losers no matter what. If the losers are reduced to a point where they can no longer fend for themselves and meet their basic needs for subsistence, they will take extreme measures to assure their survival; namely, destroy the environment for water, food, clothing, and shelter, and increase the birthrate as a hedge. Both of these consequences are disastrous not only for those who are scrounging at the bottom of the power ladder, but ultimately everyone as the environment is compromised by over-population and other ways that adversely affect the whole system. How do people realize that to take so much from others and put lives at stake costs far more to correct than to leave enough so that even the least can enjoy a minimum quality of life? This disparity will only continue unless another course is taken. The question begs answers.

China is a nation dealing with density, diversity, and disparity. And the consequences of not adequately addressing these three are dire. However, as Friedman notes, China’s leaders know the future is not going to be bright for long if these conditions persist or worsen. China is stewing in the questions that beg answering.

Friedman also states that what is needed is an integrated solution. This involves countries and organizations outside China working with institutions and groups inside China. That is where the articles at the outset of this posting have particular poignancy: China is reaching across internal and external boundaries to bolster research capabilities, strengthen academic rigor, awaken and advance entrepreneurial spirit, and direct attention to improving environmental quality and along with it quality of life for Chinese citizens. That degree of focus and commitment, coupled with an abundance of resources to put into the effort, give China the opportunity to learn and gain much. While China will not find THE answers to these questions, the lessons mastered in addressing them will benefit the world. May we all get an “A” in the course!

Originally posted to New Media Explorer by Steve Bosserman on Sunday, November 6, 2005