Customer Reviews

Why Most Things Fail

5 star:		(5)
4 star:		(2)
3 star:		(6)
2 star:		(5)
1 star:		(2)

 

 

Paul Ormerod's "Why Most Things Fail: Evolution, Extinction and Economics," begins with the observation that failure is everywhere but is not the subject of standard analysis by the economics profession. Since the advent of the modern corporation, 22% of the top 100 companies at any given time drop from the elite rankings in the next decade, 10% of all companies fail each year (granted, mostly the newbies), and 50% of globally successful companies go extinct within the lifetime of a modern human. Why?

Ormerod brings a journalist's and economic historian's perspective to the question. He snorts at general equilibrium theory as being fundamentally at odds with how the real economy works. Standard supply curves? NO. Demand curves? NO. Setting price at marginal costs? NO. Perfect competition? NO. Perfect information? NO. Eventually rising marginal costs with greater production? RARELY.

I'm not surprised that professional economists would find this book lacking. Yet for most of us that have only taken Economics 101 or mostly get our economics from pop economists on news and business programs, Ormerod raises important questions and brings forth important ideas. There is indeed much that the conventional economics community has gotten wrong or has been too simplistic about. This book is a very good re-entry into economics if you have been away for a while.

Ormerod's major thesis -- and what caught my eye in getting the book in the first place -- is that there are many parallels between biological evolution and the behavior and extinction of firms. For this, Ormerod especially points to both systems as being characterized by much uncertainty and complexity. No argument there.

In knocking down the pins of conventional textbook answers, Ormerod covers topics such as game theory, bounded rationality, probablity theory and power laws, invoking names and characters such as Von Neumann, Hayek, Stiglitz and others along the way. His thesis also allows him to explore the question of exogenous and endogenous causes with some freshness.

Strangely, though, he is virtually silent on the real commonality between economic and biological systems -- namely the central importance of information -- and gets into a very strange and indefensible analysis of punctuated equilibria and extinctions for species spanning 550 million years in comparison to visual correlations that create an "immediate impression of similarity" with graphs of firm extinctions over the past 83 years. As Ormerod states, "The relationship that describes the connection between the frequency and size of extinctions in biological species is the same as that which describes the extinctions of companies. The timescales differ dramatically, but frequency and size are connected identically in both."

Hogwash.

Ormerod gravely mis-matches samples, causality and power curves. Indeed, similar power curves can be constructed for Web site popularity or term frequencies in the English language (among many others), which surely have nothing to do with "truths" about the extinctions of economic firms. Also, given Ormerod's thesis, he could have gotten some additional interesting mileage from Iansiti and Levien's business ecosystem theory of The Keystone Advantage.

There is certainly insight that uncertainty makes it difficult to foolproof against the future and is one reason why things fail, also certainly compounded by complexity. I also think Ormerod is able to make a pretty good case for how acquiring knowledge can help buffer against these factors.

So, I give this book 5 stars for readability and provoking thought; indeed, it has gotten me to get re-acquainted with recent economics literature. But I can only give it 1 to 2 stars for its logical side due to its mis-labored analogies and poor analysis. BTW, for an intro to more serious discussions about the relationships of evolution and economics, see writers such as Nelson and Winter, Galor, Mokyr, or Ziman, among others, or the listings at IDEAS: Papers on Economics and Evolution from the Max Planck Institute.

Paul Oremerod bills the book as a theory for why everything fails. This high concept book (aimed at the audience of similar high concept books like Blink and Freakonomics) unfortunately fails to deliver on it's promise of a grand unifying theme. What is presented is an attack on classical economics. Well deserved, and well delivered from an insider in the profession, but not a coherent explanation of why things don't work.

Whining aside, the book won't kill you, it's an easy read, and you'll learn something (quite a bit!) from it. For that, it does deserve a spot on my bookshelf.

I'd like to recommend this book, but I can only recommend the first half of it. I'm a fan of solid economics writing and clear systemic argument. This book begins with both and builds a case for understanding something both obvious and stunning-- businesses fail at such a high rate that they look a great deal like biological systems suffering waves of extinction events. I greatly enjoyed Ormerod's "Butterfly Economics" but after a solid beginning this book lost focus.

One very good item here is the Iron Law of Failure. He writes, "Failure is pervasive. Failure is everywhere, across time, across place and across different aspects of life; 99.99% of all biological species that have ever existed are now extinct. More than 10% of all the companies in America disappear each year." Failure happens when companies don't evolve and change to meet new challenges, competitors or brands. What happens after failures is also a key component of the book and one I wish he would have dealt with more deeply. The ideas of creative destruction and adaptive evolution are found in the latter half of the book but they seem less developed. And while the existance of an Iron Law (I liked the term) is no doubt true, is it necessary for the growth of prosperity? Do we all do better, live longer, etc., because of competition and destruction?

He's a great writer and wonderful thinker but this is only a fair book.

I bought this book hoping for insight into "why most things fail." What I got was a rambling argument grounded primarily on the similarity of the frequency distributions of business failure and biological failures (extinctions). Frankly, the relationship hardly strikes me as logically necessary, and the relation could well be spurious (or coincidental). But I'm no PhD and didn't give it a lot of thought, so I could well be wrong.

What I am certain of is that the book offered little else, no corrolaries, certainly no explanation of the reasons "why most things fail," and no other practical insights or knowledge.

Bottom line, wait for the book's appearance in the discount bin before buying.

I have two perspectives for the review of Mr. Ormerod's fine book. First - if you are new to this subject, the book is interesting throughout as it helps explain, or at least builds a framework to hang our hats own about why some things seem to succeed and others fail. There are multitudes of examples from the pet rock (succeed), to the Edsel (a considered failure).

Second - if you are familiar with the subject of extinction theory and dynamic systems, the book starts out slow, but really hits its stride in Chapter 8 "Doves & Hawks" (and forward) as we start to get into examples of dynamic theory and extinction theory/data. In Chapter 10 "The Powers That Be" we learn that systems in which the connections are not random but follow a power law have completely different properties than ones that do, since it is the structure of the connections between the component parts (i.e. agents) which gives systems their distinctive and characteristic features.

No, don't be afraid, as this is not a technical book as I make it out to be as all the examples are easy to read and comprehend. If you are interested in this subject, other fine books to review are Ubiquity by Mark Buchanan, The Black Swan by Nassim Nicholas Taleb, or Deep Simplicity by John Gribbin.

This book fails to answer the question posed in the title. It never explains why things fail. Rather it describes the pattern of failure in biology and economics. The author spends much space taking puerile swipes at "orthodox" economics and in the end extols the work of Hayek and Schumpeter because he mistakenly believes they are outside the pale of the current economic profession.

It is a shame that he did not spend more time analyzing whether economic theory might explain failure or attempt his own explanation. The topic remains to be explored. For example the author harps on how no business can be found to explicitly maximize profits through marginal cost pricing and therefore the theory is "unrealistic." He has failed to recognize Milton Friedman's observation that pool players make shots consistent with the laws of physics but cannot explain those laws. Perhaps failing to maximize profits through marginal cost pricing is a recipe for failure.

This book is the follow up to the excellent Butterfly Economics.

As I write this review, a leading conservative commentator on a television show broadcast by the Fox News Channel, was stating that the US economy was doing very well. This statement seemed to me to be at odds with the reality as I observe it with For Sale signs springing up almost daily like mushrooms, the lower middle classes and working class are seeing their real incomes eroded, with inflation under control while prices are rising in the shops and at the pumps and where, despite rising interest rates the dollar is falling.

Like meteorologists, economists do not seem to be held accountable for their failed forecasts and predictions. Despite tremendous advances in mathematics and statistics as a society we are no closer to being able to explain how the economy works and if, as former President Bill Clinton so ill-eloquently put it "it's the economy stupid", how does the present incumbent not fix the problems.

This introductory guide to an alternative perspective on economics lays a foundation to the current economics paradigm. Deliberately written in (mostly) non-technical terms, Ormerod's book harkens back to the time of Keynes and presents an exposition which most adults with a rudimentary education can follow. This is a deliberate challenge to the prevailing orthodoxy which asserts that economics is a subject which can only be understood by virtue of advanced mathematical tools thereby excluding the majority of the populace.

Ormerod examines some of the failures of the current discipline to even describe some phenomenoa accurately and ascribes much of thess failures to the central role played by the concept of equilibrium, in particular general euilibrium, which predominates much of modern economics and has done for some sixty years or so. However, the author is clearly concious of the need for construction as well as demolition and he seeks to offer the basis of an alternative prospectus.

Although essentially a descriptive text, Ormerod's book carefully provides some clues to the alternative paradigm on offer. he supports his arguments with reference to works of others in the emergent disciplines which illuminate this perspective as well as drawing intellectual support from the work of Hayek and Schumpeter to name but two. Not only that but for those who wish to pursue his arguments further he provides links to more advanced, and more mathematical, sources.

Ormerod is gentle with the economics profession. They have been led down a false path to a place from which they are unable to escape, and despite having access to the most powerful of modern computers, the economists qua economists have been unable to provide any better answers to the questions of thousands of years than those economists of centuries past.

There is a growing body of scholarship which crosses traditional (party) discipline lines as dissatisfaction with economics as we know it continues to grow. Some have sought to search along the path of complexity while others have retraced the steps of earlier unorthodaox economics scholars and found a rich harvest as in the work of those like Ormerod, or from a different perspective, Geoff Hodgson. This scholarship is bearing much fruit but as yet is not in a position to provide the final blow to what is now so clearly a blind alley but which provides many jobs in many areas.

Ormerod is providing a great services in opening up this new world to the majority of the population. In light of the crucial importance of this emerging paradigm I have no hesitation in recommending this book to students, practitioners, indeed anyone involved in political or economic work, as a must read.

It's hard to get the answer to "Why Most Things Fail." The book goes deep into mathematical formulas. Admittedly, I don't bring to this reading a background in math or economics. So, most of this exploration lost me. However, since I was still looking for the answer as to WHY most things fail I did look for the conclusions and links. Even if I were able to resolve Nash equilibria and the like, there was no correlation to the supposed narrative exploration that I could see.

This does not mean that there is no value to this book. What Ormerod does posit is that there are immutable Power Laws affecting all matter - species, ideologies and businesses alike. All things fail. That alone is a powerful reframing. Existence of anything could probably be more successfully extended when strategies are anchored to this position.

In one small paragraph toward the end, Ormerod does state rather succinctly the reason why things fail. It is that we as humans are limited in our ability to understand dynamic and complex environments. While we certainly can't grasp everything, there are more correlations perhaps worthy of another study. Our understanding has increased over the millennia in direct correlation to the length and quality of our existence. That is why the pursuit of information and insights, even if they are difficult to follow as they are in this book,is worthwhile.

This book should be essential reading in all MBA programs and boardrooms. Failure of many ventures is inevitable, any person with a few years of business experience can attest to that. The problem is many consultants and strategists do not understand the chance or dynamics of failure. The lessons this book carries and the facts collected here are vital to all the large scale ventures in the world but are not just concerned with the economics of them.

The book should have been titled a less grandiose, "Determinate factors in success and failure over a wide range of economic studies." Okay, I wouldn't have bought the book then, but if I did, I wouldn't have felt cheated. Did he write these essays first, put the title on last, write the book with title in mind and simply get bored with the subject? Who knows. Although well-written, the book lacks focus and passion.