Non-linear systems and Pareto distributions

This essay struggles to maintain its logical coherence but the core of its argument is a relatively clear articulation of a frequently unacknowledged truth - human systems are complex systems; complex systems inherently incorporate non-linear elements; non-linear systems produce Pareto distributions.

For those whose normative desires dictate that all human systems should deliver equal outcomes (as opposed to Pareto distribution outcomes), the task becomes how to engineer the system so that it does not incorporate any non-linear elements. But to engineer out all the non-linear elements makes the system fragile and prone to rapid terminal failure.

You can have coercively imposed deterministic systems that create equal poverty or you can have non-linear systems that deliver increasing wealth that is also increasingly disproportionately distributed. No one has yet discovered a third way, middle road, or cultural revolution that delivers rising wealth and rising equality. And the failure is not due to human malevolence, evil or ignorance. The failure is due to complex systems being inherently non-linear and therefore with a Pareto distribution of outcomes.

From Why Socialism Is Doomed To Fail by David Solway.

To strive, for example, to build an ideal society in which “equality of results” or “outcomes” -- what is called “social justice” -- is guaranteed can only produce a levelled-down caricature of human struggle and accomplishment. We have seen it happen time and again, and the consequences are never pretty.

The infatuation with “outcomes” in the sense of compelled equality persists wherever we may look, significantly in education, where equality of result is enforced under the tired mantra of “diversity and inclusion” -- standards are lowered, everyone is admitted, everyone graduates, everyone gets a trophy or a degree regardless of input, so that no one gets left behind. Mastering the curriculum, however, is a highly competitive venture, meant to sieve winners from losers; we recall the word derives from the Latin for “race course.” The “equality” compulsion is especially paramount in “social justice” legislation which ensures that unmotivated non-contributors to civil order, prosperity and disciplined excellence in any field of endeavor are treated as at least equal to and often favored over successful practitioners and genuine achievers.

There is another, perhaps more clinical, way of regarding the issue, known as the Pareto Principle, deriving from the work of Italian econo-sociologist Vilfredo Pareto (1848-1923.) The “equality” or “outcomes” obsession, as Jordan Peterson has pointed out with reference to Pareto, is a noxious delusion. The Pareto Principle specifies a scalene relationship between causes and effects in human endeavor. Also known as the 80/20 Rule, the principle postulates, as a matter of discernible fact, that 80% of a nation’s wealth is typically controlled by 20% of the population. It has almost always been so. (The Pareto calculus, it should be mentioned, has nothing to do with the urban legend of the greedy “one percent.” The wealthy already contribute disproportionately in terms of employment and taxes to the social leviathan.)

In an interesting aside, Peterson acknowledges that Marx was correct in observing that capital tends to accumulate in the hands of the few. But Marx erred in considering this imbalance a flaw in the capitalist system. For such asymmetry, as Pareto and others have shown, “is a feature of every single system of production that we know of.” Disproportion is intrinsic to human life, whether we like it or not. Moreover, the Rule applies not only to economic factors but to distributions inherent in almost all productive human efforts and enterprises. The potential for human achievement is never evenly distributed. True success in any creative endeavor is invariably a function of that small band of individuals who, as Peterson says, exemplify power, competence, authority and direction in their lives. Briefly, IQ and conscientiousness are the biggest predictors of success.

Although the Rule does not enjoy the status of a Law, it is for the most part reliable. In other words, no matter how we may tamper with distributive sequences, life is simply not fair. People are born with different aptitudes and are exposed to a variant range of formative experiences, giving rise to personal “outcomes” that cannot be preordained. At the same time, the sum of such particulars group into predictable aggregates which are statistically definitive.

Distributions of wealth, as Richard Koch explains in The 80/20 Principle, are “predictably unbalanced,” but the “data relating to things other than wealth or income” can be generalized, as noted, over the broad spectrum of human activities, pursuits and behavior: time-management, distance relations, crime distributions, artistic masterpieces and innumerable other phenomena. One-hundred percent of most things amenable to statistical calculation tend to happen, speaking metaphorically, within a 20% radius, including that which we consider best in life. Out of every 100 books published, to take one instance of how the Rule tends to operate, approximately 20 will have marketable success. It is thus to our advantage, Koch continues, to determine and isolate the 20% of time and effort which are most productive; the remaining 80% turns out to be dispensable.

Elaborating on the Rule with a view to furthering proficiency, engineer Joseph Moses Juran, the father of TQM (Total Quality Management), which revolutionized habits of thought in business, manufacturing and engineering, posited his “Rule of the Vital Few” in accounting for the disparity between inputs and outputs. As Koch puts it in his summary of Juran’s thesis: “For everyone and every institution, it is possible to obtain much that is of value and avoid what is of negative value” by understanding that evolving systems are nonlinear, that “equilibrium is illusory and fleeting,” that minorities are responsible for majority payoffs, and that focusing on the 80% at the expense of the 20% in any sphere of human activity will inevitably yield negative consequences. (Needless to say, the term “minorities” in the expository context alludes not to racial or gender minorities, but to a creative minimum.)

We are clearly indebted, as Nassim Nicholas Taleb stresses, Pareto-like, in his new book Skin in the Game: Hidden Asymmetries in Daily Life, to those who really do have skin in the game, who are “imbued with a sense of pride and honor,” who are “endowed with the spirit of risk taking,” and who “put their soul into something [without] leaving that stuff to someone else.” Taleb’s version of the “minority rule” is even more drastic than Pareto’s, reducing the 20% to “3 or 4 percent of the total population.” They are the “heroes” on whom the good of society depends.

Missing from the discussion is an examination of whether the 80% lower productive are a necessary predicate to the 20% who dominate the outcomes. I suspect that that is the case.

If you take the 20% most productive from a system, will you find a Pareto distribution among them? Yes. On ad infinitum. It is turtles all the way down.

So on the one hand, you can argue that the system has to be treated as a whole such that, while 20% produce 80% of the results, the 20% of producers necessarily require the other 80% in order for that additive value to occur.

On the other hand, it also seems demonstrably true that when you remove the conditions of freedom and choice, i.e. when you use coercive means to redistribute the outcomes, you also destroy the prerequisites for the exceptional differential performance in the first place.