Vilfredo Pareto: Someone You Should Know

Vilfredo Pareto (1848-1923) was an Italian economist noteworthy for the originality of his concepts1 his ability to render his own ideas incomprehensible to others,2 and the idiosyncratic flair of his lifestyle.3

After studying the distribution of wealth in 19th century Britain and then in other countries and other time periods, Pareto derived the following:

log N = log A + m log x
where N = the number of earners with incomes greater than x
and A and m are constants

While that expression might set another economist’s toes tapping, the rest of us owe a debt to that unknown individual who noted that the outcome of this formula was that a relatively small fraction — 20% of the population — controlled an excessively large majority — about 80% — of their community’s wealth.4

Observations that a similar distribution of cause and effect applies to many other areas have led to Pareto’s Principle, a generalization of Pareto’s original economic formula. Manufacturers, for example, may find that 20% of their customers contribute 80% of the total profit; elementary school teachers that 20% of their students cause 80% of all behavioral problems; and studios that 20% of the movies they produce are the source of 80% of all ticket sales. And, in fact, 20% of the population currently require 80% of the healthcare resources used.5

Joseph Juran, one of the pioneers of the Continuous Quality Improvement movement, recognized the power of Pareto’s Principle and, in 1937, embedded it as a fundamental tenant of the Continuous Quality Improvement (CQI) process, emphasizing the contrast in the effects of the “vital few” and those of the “useful many.”6 Because the majority of quality problems typically originate from a relatively small number of the potential sources, the concentration of CQI improvement efforts on these few selected causes will have a greater impact and be more cost-effective than undirected efforts.

Note: Originally posted Oct 24, 2006 at 1HeckOfAGuy.com, a predecessor of AllanShowalter.com

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  1. Pareto is also responsible for the Pareto Optimum (1906) and the Circulation of Elites (1916) []
  2. With the notable exception of a skiewed version of his sociological theories incorporated by Italy’s Fascist Party as rationale for their political maneuvers, Pareto’s concepts were little more than footnotes (not unlike this one) until the Continuous Quality Improvement movement of the mid-1900’s []
  3. In 1909, Pareto retreated from the irritations of Italian society to more copasetic environs on Lake Geneva with his mistress and 30 Angora cats []
  4. While this notion has since garnered the name “The 80/20 Principle” the focus on these precise percentages is arbitrary; the appellation “The 65/10 Principle,” for example, would also be mathematically accurate. Pareto, for his part, never descended from the dignity of logarithmic terminology to use the vulgar “80/20” sound bite. The essential point is that the relationship between the proportion of total wealth and the proportion of the total population controlling that wealth is unbalanced in a consistent, mathematically predictable manner. []
  5. Strategic planning futurists need to be capitation-specific and epidemiological, Heath Care Strategic Management, 1 Sept 1995 []
  6. http://www.juran.com/drjuran/bio_jmj.html. Dr. Juran Biography, An Immigrant’s Gift, The Life and Contributions of Joseph M. Juran. Adapted from the script for the television documentary, An Immigrants Gift. The film, produced by Howland Blackiston explores quality’s impact on society and the life and career of Dr. J.M. Juran. Script by John Butman and Jane Roessner. []

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