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Why Most Things Fail

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Why Most Things Fail

Evolution, Extinction and Economics

Pantheon Books,

15 min read
10 take-aways
Text available

What's inside?

Evolutionary biology may reveal more about business failures than random economics explains.

Editorial Rating

10

Qualities

  • Innovative
  • Applicable

Recommendation

This excellent, short work by Paul Ormerod is a worthy successor to his remarkably successful Butterfly Economics. As he did in that work, he draws here on lessons from biology to explain phenomena in economics. He covers a wide range of subjects, time periods and theories, all tied together (though not without some straining at the rope) by an inquiry into failure. Although Ormerod makes every effort to keep the work accessible, that scarcely makes it is easy reading. Readers who lack at least a nodding acquaintance with scientific writings and economic studies may find this hard slogging indeed. With that caveat, getAbstract thinks that readers who have a background in this field should pay serious attention to Ormerod’s ideas. The notion that failure is inherent and inevitable for many systems ought to guide business strategies and - especially - government regulation.

Summary

The Fact of Failure

Most businesses fail. Even large, successful, monopolistic corporations are not secure. Pioneering economist Alfred Marshall thought early in his career that, like trees, massive corporations would eventually die. Later, he changed his mind, writing around 1910 that such companies "often stagnate, but do not readily die." He was right the first time. Most of 1910’s big companies no longer exist. They failed. Yet economists have nearly ignored this fact of business life. Instead, they treat failure like the exception to the rule. Conventional economics depends on equilibrium, a precise balance of supply and demand. Equilibrium is static. However, the people and circumstances in a social system, and an economic system, are not static. They are in perpetual motion and change.

Thus, the kind of data about demand, cost, pricing and competitive response a traditional economist might use to plot a strategy are often inadequate. Conventional economic analysis offers simplistic approaches to the complex matter of managing a business.

Failure is not unique to business. It exists in many dimensions. For example, government policies devised to reduce ...

About the Author

Paul Ormerod was the head of the economic assessment unit at The Economist and the director of economics at the Henley Center for Forecasting in England. He taught economics at the universities of London and Manchester, and was a founder of a major consulting firm.


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