The 80/20 principle, more commonly tagged as the Pareto principle, makes the observation that in many cases, only 20% of the causes results in 80% of the effects.
This principle was explained by Joseph Juran, a business management analyst. He based this on the assertion of Vilfredo Pareto, an Italian economist, that only 20% of Italy’s population controlled ownership of 80% of the land. Pareto went on to observe the situation in other countries and found similar examples.
The Pareto principle may be related to, but is not the same as Pareto efficiency or optimality. The concept of Pareto efficiency has more to do with the creation of efficient conditions in which another individual does not need to suffer for the sake of the advancement of an individual. Like the original idea from which the Pareto principle was formed, though, this is related to the distribution of income and resources.
The Pareto principle is also used in the workplace, as another rule of thumb is that 20% of workers contribute 80% of the total output. This helps companies determine where funds should be allocated, or where more rewards should be distributed, in order to encourage greater efficiency.
In the business world, a commonly-held belief is that only 20% of clients account for 80% of total sales. A similar relationship may also be observed in the distribution of power and wealth on a global scale. For instance, in 1992, the United Nations Development Program established that roughly 20% of the wealthiest people in the world hold control over around 80% of the world’s wealth. The Pareto principle has therefore been used as a basis for discussing the distribution of wealth and power on a global level. However, critics disagree, and hold that less than 20% of the world’s population has control over 80% resources. Economist Paul Krugman, for instance, says that economic benefits are mainly shared by the top 1% only.
The Pareto principle may also be referred to as the law of the vital few.