How an old Italian economist blew my mind about social media

Everyone knows Pareto for his 80-20 rule, but the man offered much more when it comes to human insight.

Everyone knows Pareto for his 80-20 rule, but the man offered much more when it comes to human insight.

Sometimes, it’s a little shocking when you find out the real story behind something. I had one of those moments just the other day.

I’ve been reading about Vilfredo Pareto—yes, of the famed “Pareto 80-20 rule” we’ve all seen in a business PowerPoint presentation at some juncture. The rule, generally speaking, states that 80% of effects come from 20% of causes.

So, for example, 80% of your sales usually come from about 20% of your customers.

And 80% of your organization’s best work and ideas come from 20% of your employees.

I imagined—like the scene from a movie—a sleepless and haggard Pareto pouring over dusty economic tomes, and writing furiously on a blackboard an equation that us mere mortals would find impossible to understand. Then, in the small hours of the morning, the eureka moment strikes, and the 80-20 rule is born.

But, no.

The 80-20 rule came from Pareto’s garden. He found that 20% of the peapods he planted yielded about 80% of the peas he enjoyed eating. Most people, if they made that observation at all, would stop there. But, Pareto’s genius wouldn’t have it.

He wondered if the 80-20 rule applied to anything else in life—like, say, economics or power.

Through diligent research, Pareto found that 80% of land in Italy at the time was owned by 20% of the population. And it was the same in other countries. Pareto applied it to other aspects of economics and sociology, too, and later, other economists picked up 80-20 and ran with it. Hence, all the PowerPoint references.

Pareto was clearly a man of stellar brainpower. He was a trained engineer, but also a sociologist, economist, political scientist and philosopher. Much of his life’s work contributed heavily to the field of microeconomics. But again, many of us schleps know him only for his 80-20 contribution. But he had volumes more to offer.

One of Pareto’s gems I didn’t know about was his Circulation of Elite theory. As with much of Pareto’s work, it dealt with power, how people get it, what folks do with it once they’ve got it, and how they eventually lose it.

Pareto said the world is divided into two basic types: Speculators and Rentiers. Speculators are the ones who lead change in society. Today, we’d call them, among other modern monikers, early adopters. They’re the first ones to sign up for a social media platform or wait in line for two days for the latest Apple product. They push the envelope, explore, and love when things change. Many tend to earn their living more from speculative ventures, like entrepreneurship, investments, ideas and the like.

Rentiers, on the other hand, are life’s stable force. More predictable and comfortable with routine, Rentiers are more conservative and less exploratory. In today’s vernacular, they’d be the middle to late adopters or followers. Most in this group tend to be steady income earners.

Pareto said that each group tends to circulate power. When the Speculators have screwed up government or society with too many hairbrain schemes or corruption, the Rentiers come into power and stabilize things. But, a Rentier-dominated society is one that lacks imagination and forward mobility. That’s when Speculators burst onto the scene to liven things up and force growth.

As I tried to wrap my head around all of this, I was reminded, a lot, of social media. That entire medium is driven by this Pareto theory, and the stats I’ve seen lately back this up…

  • Despite the stereotypes of digital-obsessed Millennials, not every one of them has a blog or is an influencer. In fact, most aren’t. Depending on what study you read, the vast majority of Millennials follow others… consume content… and act more Rentier-like.
  • That said, more and more people participate in social all the time. Hence all the jokes about your mom or great aunt being on Facebook and killing it for you. The Speculators in social media—teenagers, primarily—have long moved on to Snapchat and other platforms, until the Rentiers show up there and wreck those, too.
  • Social media—and digital marketing in general—is ALL about the Speculators. Gurus like Jeff Bullas, Gary Vaynerchuk, Pat Flynn, and others rule the marketing roost right now. The rest of us spend our days just trying to keep up.
  • Economically, social media seems to fall under Pareto’s spell, too. Speculators make their cash, according to Pareto, by less conventional, more entrepreneurial-like means. We’ve all heard stories of kids who get a Brinks truck of money from a major brand to create funny Vine videos—the type of thing they’ve been doing all along, for free. The Speculators in social media have the system—or lack thereof—figured out, and are profiting handsomely.

It’s amazing to see Pareto’s theory apply like this—especially when you consider the man died in 1923. To me, it just reinforces something I’ve been considering for a long time: No matter what advances come our way, or what kind of technological miracles come to be—how humans are wired is pretty much set.

– Andy Badalamenti is the creative director for CI-Group

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