Why ALL Large Organizations Eventually Self-Destruct

We place way too much trust in large organizations like governments or the companies we work for. But in truth, their days are numbered. Let's explore why.

I.

In large organizations, incompetence grows exponentially, while competence only grows linearly.

This is known as Price's law (named after Derek John de Solla Price, a British physicist and historian of science).

Price's law states — with any given project, the square root of all the people involved will produce 50 percent of the results.

Let’s say you have a small business of 9 employees.

According to Price’s law, 3 of them do 50 percent of the work, while the remaining 6 produce the other 50 percent.

Now, let’s look at a mid-sized company of 100 employees.

Here, ten employees do 50 percent of the work, and 90(!) employees are needed for the other 50 percent.

Finally, a big company with 10,000 employees.

Only 100 employees are responsible for 50 percent of the work, while a staggering 9900 are required for the other 50 percent.

Do you see what is going on here?

Things get worse as you grow bigger.

II.

When a large organization — a business, a country — struggles, the few high performers will be the first to leave the sinking ship. This happens for two reasons.

First, they are used to taking the initiative. So, they will start looking for alternatives before anyone else does.

Second, they know they are competent and thus have options. Finding a new opportunity — a new job, a new country of residency — will be easy for them.

So, if you are a struggling company of 10,000, once your 100 high performers are gone, you are left with 9900 ineffective employees.

Not only did your productivity just get halved; you are now dealing with a huge overhead of useless staff.

The same thing happens on a much larger scale with countries. Just look at Russia right now — the highly educated elite is leaving the country in droves.

Bottom line — once things start to go bad, they will soon get much worse. It’s a death spiral virtually impossible to get out of.

III.

Price’s law gives credence to a cyclical view of history, as proposed by thinkers like Giambattista Vico, Oswald Spengler, and Arnold Joseph Toynbee.

Here, history is a series of rising and declining empires. Each empire has an energetic early phase, a productive peak phase, and a decadent late phase.

Think of it like a plant that blossoms and dies before it all starts over in spring.

This cyclical view contradicts the mainstream view of history (which goes back to Hegel). Here, progress is never-ending. It's a delusion that suits us — but it's a delusion nonetheless.

The self-destruction of any large organization is a question of when, not if.

IV.

We all cling to the belief that this will never happen to us — the business we work in, the Western society we live in.

But the evidence is clear.

In businesses, the average S&P 500 company has a life expectancy of 18 years. 75 percent of the S&P 500 will be replaced by 2027. Companies like Pan Am, Commodore, and Enron clearly illustrate this point.

Likewise, numerous empires have come and gone. Ancient Egypt, the Babylonian Empire, Imperial China, the Romans, the Aztecs — they all thought themselves invincible.

Where are they now?

In every expanding organization, there comes a moment when competency is buried by incompetency. Railing against it is as pointless as railing against the weather.

Price’s law is truly a law.

V.

I realize all of this sounds very fatalistic, but it is not.

First, every ending means a new beginning. After one cycle ends, another one starts.

Second, the late phase of every large organization has its own, decadent beauty. This, too, can be enjoyed, similar to a stroll on a beautiful fall day.

Third, and most importantly, we should never chain ourselves to the fortune of a group. The only antidote to Price’s law is the individual.

The square root of one is one.

When you rely on yourself, competence and incompetence do not follow the rules of linear and exponential growth. They develop according to your choices.

We might be slaves to the time we are born in — but as individuals, we are free to conduct our lives as we see fit.

There is only one corner of the universe you can be certain of improving, and that’s your own self.

— Aldous Huxley

A bit of a philosophical newsletter today. But we'll soon get back to more practical strategies for improving your life.

I recorded my first YouTube video. It's not online yet, though. Still need to find a thumbnail designer. But things are moving in the right direction.

I'll fly back to Germany at the beginning of April to see my family, but already pondering my next destination. Bali is on my mind. So is Columbia. We will see.

Until next week,

Niels