Why Most Things Fail: Evolution, Extinction and Economics

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Why Most Things Fail: Evolution, Extinction and Economics by Paul Ormerod London: Faber and Faber Ltd, 2005

Given the pervasive nature of failure currently undermining economies, this book presents itself as a one-stop shop to dissecting the disposition of economic and societal collapse. In reality it is more a high concept book which offers little in the way of practical advice for managers of ailing firms in today's tumultuous climate. However, what the book successfully offers is a thought-provoking, fresh perspective on failure in markets, governments and societies. Why Most Things Fail is a fusion of ideas that draws from economics to biology, history to mathematics and psychology to physics. The author is keenly inspired by Hayek, the 1974 co-Nobel Laureate in Economics, whom he cites within the text as saying, 'An economist who is only an economist cannot be a good economist' (p. 226); it is clear from the beginning of the book that this is a mantra Ormerod strongly believes in. The text commences by introducing the reader to the Iron Law of Failure, which highlights the permeating nature of failure; according to Ormerod extinction eventually strikes, in fact, '99.99% of all biological species which have ever existed are now extinct' (p. ix). This statistic becomes increasingly daunting when the author presents a link between the extinction of biological species and the failure of companies. The juxtaposed relationship between biological species and economic organisations is the most intriguing argument presented in the book. The author puts forth his model, that the mathematical relationship which illustrates the link 'between the frequency and size of the extinction of companies ...is virtually identical to that which describes the extinction of biological species in the fossil record' (p. x). While this statement sounds rather outlandish it provides a great backdrop to illustrate the grave differences between the cold, logical agents that underpin most economic theories and the complex, evolving, instinctive firms that are indicative of real life and exemplified within the text. It is also noted that a fundamental difference between biological evolution and the evolution of the firm is that companies are run by individuals acting in a strategic manner with the intent of becoming increasingly fit for survival, whereas 'the process of evolution of biological species cannot be planned' (p. xi).

The next section of the book (Chapters 2, 3 and 4) examines issues such as inequality, social segregation and poor social mobility in the context of both the economy and broader society as failure is inherent yet highly undesirable in these areas. Some thought-provoking concepts are raised in this section, such as the 'diamond back', where the minority elite live in the confines of a diamond-shaped enclosure and pass on privileges to their children, while the less fortunate majority live in their own diamond and the two diamonds are connected by a narrow isthmus which a rare few will ever cross, and although education can be and is being used as an instrument to increase the level of social mobility across the classes the rate of social mobility has been consistently falling from the late 1960s up to the present day (p. 41). Social segregation is examined using Manchester's disparate social classes and territories as an example because they remain distinctly separate to such a degree that it is very similar in 2004 to what it was in 1844, despite generations of social reformers working towards social cohesion and integration (p. 60). According to the author, the failure of policy makers to overcome these societal injustices could be explained to a degree by Schelling's geographical segregation model. Schelling's model involves a massive chessboard-style layout with an equal number of two types of agents, which populate across the board in a random, scattered fashion. The game progresses by each agent being allowed to move individually and choosing to move if there is less than a specified percentage of its neighbours of the same type as itself. …