IRON LAW OF FAILURE

Omerod,P. (2006) Why most things fail New York: Pantheon

Omerod, who is the author of Butterfly Economics illustrates how catastrophic chaos theory works in the natural world and in the life and death of most businesses. For short interims, reality appears to stabilize and change appears to be gradual. Then a whole spectrum of species and business die. From the ashes of the catastrophe, new businesses and species emerge. The cause of the death of the last business is a tremendous change in the economic system. For species, it is a massive change in the environment that affects the topography and kills plants and animals.

In Economics, one has the illusion with bell curves, ratio numbers, statistical analysis of "stasis." However, equilibrium soon breaks and struggle slaughters most of anything. That which arises is an adaptation to the present, not the next catastrophe.

Companies are blind sided like dodo birds. Only a few survive. The large slaughter is somewhat like the Iron Law of Oligarchy by Robert Michel's. His premise is that in most if not all things , a few start and than many and yet only  a few survive. If they have enough power they then cook or jimmy the system to create imperfect competition.The few win over the many. However, Omerod's contribution is that he underlines through chaos theory how the many fail. Or how the many do not grow to be giants.

We do not live in a even flowing linear world. We may impose order with words and numbers, but the order is really not seen even though it is there. Chaos appears to triumph, only to give birth to more survival of new businesses. In  the end, it is winner takes most. It is somewhat similiar to Pareto's Optimum Ratios. About 20% get 80% of everything. It takes liberals, social democrats, and neo-socialists to redistribute some of the wealth to the 80%.

Omerod is proud of Coca-Cola when they change the "classic coke" to "new coke." When that flopped, they quickly changed back to the original formula. Thus Coke survived. On the other hand, LONG TERM CAPITAL MANAGEMENT, a hedge fund, failed. Yet, the academics running it kept going back to the same premises. It finally bailed and was backed by the government to investors.

Omerod has little faith in long term planning of any sort or redistribution. We still do.