The Italian economist Vilfredo Pareto (1848-1923) discovered a remarkable rule. Eighty percent of the output, the result, comes from only twenty percent of the input, the effort. By consistently applying Pareto's Law, much can be achieved and saved. Could this be the solution to the out-of-control government spending?
The Pareto principle
Pareto was an avid gardener, as there are many. He kept a close eye (and this was less common) about which of his pea plants gave the most yield. He made a remarkable discovery in 1906. Twenty percent of his pea plants together accounted for eighty percent of his pea crop. When Pareto started paying attention, this law also appeared in other phenomena. Twenty percent of the Italian landowners, for example, turned out to be responsible for eighty percent of the land ownership. This also applies to income tax. There are many countries where it is worse, by the way. In fact, there is the so-called Pareto index, which shows income inequality. This law is in his honor later it principle of Pareto called. Pareto itself did not end well. The man married a Russian, who later ran off with a servant. He was moved by his social Darwinist ideas about the inevitability of inequality in fascist waters. This made him unpopular.
Pareto principle increases profitability
His principle is now used by business people to increase their profits and efficiency. For example, twenty percent of the customers are usually responsible for eighty percent of the profit. So it is smart to pamper that 20 percent and try to get rid of the 20 percent of the customers, who are responsible for 80 percent of the complaints and costs. Sales staff and advertising campaigns cannot escape Pareto's razor either. Because here also applies: twenty percent is responsible for eighty percent of the result. Of course we could not resist applying the Pareto principle to visionair.nl articles. Indeed, the twenty percent most popular articles are responsible for more than eighty percent of visits.
Pareto in everyday life
In fact, this also applies to your daily life. You spend one fifth of your time doing things that pay off four fifths of everything you do. So it is smart to keep track of what things you enjoy the most and how much time or money they cost you. Is there a lousy job that takes you a lot of time but that yields little? Does eighty percent of your money go to a car or an expensive house that you hardly enjoy? Then see if it is not possible to come up with an alternative. This also applies to government spending. Only a fraction of this is really needed. The rest can be cut back and spent on the things that are demonstrably profitable. The biggest slokops, education and health care, are good examples. Eighty percent of the expenditure goes to 20 percent of the problems. We only eat, smoke and drink alcohol for a few minutes a day, but the health consequences are very serious.