Do These Magic Numbers Really Rule Our Lives? the Chancellor Made a Big Point of the Importance of an 80/20 Split in His Emergency Budget Speech This Week. Harry Mount Looks Behind the Theory to Find Why This Ratio Is Thought So Central to Modern Existence

The Evening Standard (London, England), June 25, 2010 | Go to article overview

Do These Magic Numbers Really Rule Our Lives? the Chancellor Made a Big Point of the Importance of an 80/20 Split in His Emergency Budget Speech This Week. Harry Mount Looks Behind the Theory to Find Why This Ratio Is Thought So Central to Modern Existence


Byline: Harry Mount

GEORGE OSBORNE was a history scholar at Oxford, or a Demy as they call them at Magdalen College -- where scholars are allowed to wear longer gowns and dine once a year on the venison sourced from the college's deer park.

Going on his Emergency Budget performance this week, he's also become a bit of an economist. At the heart of his Budget, he said, was the 80/20 split -- the colossal national debt would be paid off by a combination of 80 per cent in spending cuts, and 20 per cent in tax rises.

David Cameron has also stressed the importance of these magic numbers. "The international evidence shows that the 80-20 split is about the right proportion," Cameron told the Today programme.

Both men, it appears, are aware of quite how important the 80/20 split has become in economic theory, and in the world around us, too.

Over and over again, the same split crops up. BAA operates an 80/20 rule at Heathrow -- if an airline does not use a take-off and landing slot for 80 per cent of the time, it loses the slot.

Even commuting is affected by the split. For a journey to be efficient, you should ensure a 80/20 division between time spent on the Tube and on walking on the street. If you're heading from Mile End to Paddington, take the Central line to Lancaster Gate, then walk to Paddington for maximum efficiency. Do not change at Notting Hill Gate to the Circle and District line.

Economists have long been aware of these two special numbers being used in the so-called Pareto Principle. This differs from the simple 80/20 split and rests on the general assumption that 80 per cent of outcomes come from 20 per cent of causes.

So, about 80 per cent of the wear in your carpets is in roughly 20 per cent of the floor area (ie the doorways and corridors); 80 per cent of crime is committed by about 20 per cent of criminals; 80 per cent of the time you spend on reading this article will be spent reading 20 per cent of the text. In London, 80 per cent of the population uses only 20 per cent of the Tube network, and 80 per cent of London's wealth is produced by 20 per cent of the city's area.

Vilfredo Pareto (1848-1923) -- a Parisborn Italian who later became professor of political economy in Lausanne, Switzerland -- was the economist behind the 80/20 rule. He first spotted the pattern in the distribution of wealth in late 19th-century Britain: 20 per cent of the population owned 80 per cent of the wealth; a pattern repeated in many other countries.

The Pareto Principle has long been embedded in American business culture.

Office life is dictated by the idea: every moment you spend concentrating on an unimportant task is a terrible transgression of the 80/20 rule. But drop an unimportant task to concentrate on something more important and you're ticking all Pareto's boxes. There's even a book on the subject -- Richard Koch's Living the 80/20 Way [2004].

"You hear it all the time in American business schools and in business," says Philip Delves Broughton, author of What They Teach You at Harvard Business School [2008]. "Twenty per cent of employees make all the difference; the other 80 per cent are a waste of time; in venture capital, 20 per cent of the investments provide 80 per cent of the income; and so on. Like lots of these economic principles, there is a limited truth to it, but people begin to overuse it."

Even if Pareto has been overused in America, he was certainly fine-tuning a long-recognised truth: that the human race is made up of people with widely differing characteristics.

We may cluster around an average height, an average life expectancy and an average IQ. And there will be fewer people at either end of the spectrum, with obvious cut-off points: no one is taller than 10 foot; no one dies before they were born. This is the basis of the familiar bell curve graph: with a swelling around the middle and a gradual flattening of the curve at either extreme.

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