Why Most Things Fail: Evolution, Extinction and Economics [Hardcover]

Paul Ormerod (Author)

Book Description

Publication Date: February 28, 2006

With the same originality and astuteness that marked his widely praised Butterfly Economics, Paul Ormerod now examines the “Iron Law of Failure” as it applies to business and government–and explains what can be done about it.

“Failure is all around us,” asserts Ormerod. For every General Electric–still going strong after more than one hundred years–there are dozens of businesses like Central Leather, which was one of the world’s largest companies in 1912 but was liquidated in 1952. Ormerod debunks conventional economic theory–that the world economy ticks along in perfect equilibrium according to the best-laid plans of business and government–and delves into the reasons for the failure of brands, entire companies, and public policies. Inspired by recent advances in evolutionary theory and biology, Ormerod illuminates the ways in which companies and policy-setting sectors of government behave much like living organisms: unless they evolve, they die. But he also makes clear how desirable social and economic outcomes may be achieved when individuals, companies and governments adapt in response to the actual behavior and requirements of their customers and constituents.

Why Most Things Fail is a fascinating and provocative study of a truth all too seldom acknowledged.

Editorial Reviews

From Publishers Weekly

Businesses collapse just as surely as people do, yet economics textbooks and financial reporters stubbornly concentrate on success rather than failure. Ormerod (Butterfly Economics) argues this outlook is fundamentally flawed; failure, he says, is "the distinguishing feature of corporate life," and he uses it to link economic models with models of biological evolution, which he presents as a string of extinctions rather than survival of the fittest. Despite this parallel, his focus is on economic theory and what he sees as its inadequate accounting of uncertainty (defined as the impossibility of knowing how policies or business strategies will work) and how it breeds failure. He writes about complex concepts such as power-law behavior, game theory and bounded rationality, but makes them accessible to the lay reader with lengthy but readable explanations that forsake jargon for contemporary cultural references. (Though people who are already familiar with the debates he brings up will doubtless get more out of the book) Yet for all his persuasive examples, the book never crystallizes into a whole, so while readers may find many parts provocative, they are likely to finish it still lacking a complete understanding of failure as Ormerod sees it.
Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved.

From Booklist

Economist Ormerod addresses "what is probably the most fundamental feature of both biological and human social and economic systems: failure. Species fail and become extinct, brands fail, companies fail, public policies fail." It is fortunate that everything does not fail at once. With an emphasis on reality and not theory, he offers three themes: a documentation of failure, the subtle patterns he finds in the apparent disorder of failure, and the causes of failure. Ormerod concludes that innovation is the guiding principle that companies use to try to overcome the uncertainty surrounding their decisions. Management responds with constant action, testing new ideas, new brands, and new products because they cannot know with absolute certainty why an individual brand fails, and almost all brands eventually fail. The focus on innovation, developing new strategies for individual survival, is also important for consumers and citizens. This is challenging reading and not recommended for the casual reader. Mary Whaley
Copyright © American Library Association. All rights reserved

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Product Details

• Hardcover: 272 pages
• Publisher: Pantheon (February 28, 2006)
• Language: English
• ISBN-10: 0375424059
• ISBN-13: 978-0375424052
• Product Dimensions: 5.8 x 0.9 x 8.6 inches
• Shipping Weight: 12.8 ounces
• Average Customer Review: 3.1 out of 5 stars  See all reviews (20 customer reviews)
• Amazon Best Sellers Rank: #970,046 in Books (See Top 100 in Books)

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Customer Reviews

Most Helpful Customer Reviews

32 of 33 people found the following review helpful:

3.0 out of 5 stars Stimulating? Yes; Analytically Defensible? Poor, June 26, 2006

By 

Michael K. Bergman - See all my reviews
(REAL NAME)   

This review is from: Why Most Things Fail: Evolution, Extinction and Economics (Hardcover)

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.

15 of 16 people found the following review helpful:

3.0 out of 5 stars More an attack on economics than a new economics, January 2, 2007

By 

therosen "therosen" (New York, NY United States) - See all my reviews
(VINE VOICE)   

This review is from: Why Most Things Fail: Evolution, Extinction and Economics (Hardcover)

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.

12 of 13 people found the following review helpful:

3.0 out of 5 stars Good book that lost its theme, September 23, 2006

By 

Wignall "Wigs" (Hobart, IN USA) - See all my reviews

This review is from: Why Most Things Fail: Evolution, Extinction and Economics (Hardcover)

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.