Entropy and the Local Economy
Entropy is a word that is used far more often than it is understood. But if you want to understand how manufacturing activities drive economic growth differently than service functions, you need to understand entropy. So to get us started, here is a really, really short Common Science lesson on thermodynamics, which govern pretty much everything in the universe.
Thermodynamics is the study of the flows of energy and the states of matter. The First Law of Thermodynamics states that energy is neither created nor destroyed, but simply converted from one form into another. The Second Law of Thermodynamics, the one this blog addresses, states that the universe tends towards greater disorder or, in the language of thermodynamics, greater entropy.
To help you to conceptualize this, consider the following thermodynamics lessons which you can learn at home. Imagine you have just finished making your morning cup of coffee. Before you can drink it you are distracted when your four-year old comes running into the kitchen with a jar of marbles which he promptly drops on the kitchen floor. This series of events is about to teach you two key precepts of the Second Law. While you are busy helping to clean up the marbles, the universe notices that some of the heat in the kitchen is concentrated in your coffee cup. With regard to heat, the universe is happiest when everything is at the same temperature, which is the state of maximum entropy. The concentration of heat in the coffee cup is unacceptable to the universe, so it acts quickly to start equalizing the temperature in the kitchen by facilitating the flow of heat out of your coffee cup and into the room.
While your coffee is on its the way to tepid, you and your son are learning another important lesson about entropy. When he dropped the marbles, they spread all over the floor creating disorder and making the universe very happy. You, likely with only a little help from your son, expended significant energy putting all of the marbles back into the jar, restoring order. In doing so you demonstrated an important concept from the Second Law. Decreasing the entropy of a system – making it more orderly – requires the input of energy. This little lesson from the marbles is important to understanding the economies of both the world and Orange County.
Useful raw materials in the world, like metal ores or oak trees, tend to be spread out like the marbles on the floor. Manufacturing a product from them requires collecting them, purifying them, and then assembling them in an orderly arrangement. Each of these steps represents a reduction in entropy which requires the expenditure of energy as well as craftsmanship to accomplish. This reduction in entropy corresponds to the creation of value.
Since this is North Carolina, I will use the production of a cotton shirt to provide a real-world example. The cotton shirt, at its very beginning, starts as carbon dioxide in the air, and nutrients in the soil. The first steps in the process of creating the shirt occur in a cotton plant. Plants are perhaps the most efficient entropy reducers in the world. Absorbing energy from the sun, they arrange dispersed raw materials, carbon dioxide in the air and nutrients in the soil, into the complex and useful molecules which we use for pretty much everything, including food, fibers, wood, and through the decomposition of ancient plants, petroleum. In the case of our shirt, the cotton plant creates beautiful and useful white fibers, accomplishing a significant portion of the entropy reduction from raw material to shirt for us. Next we collect the fibers, clean them, and, in a textile plant, make them into a shirt. At this point the entropy reduction, and thus, the value creation, is complete. All that remains is to transport the shirt to a store and sell it to the customer. The transportation and selling of the shirt are important and necessary, but they do not make the shirt more valuable.
The combination of changes in trade policy, reduced intercontinental transportation costs, and the availability of low-cost labor in other countries has facilitated the loss of manufacturing capacity in the US and in Orange County. To the extent that we scale back our entropy-reducing manufacturing activities, we reduce our value creation, and we, as a country and as a county, struggle to can provide people with reasonable wages. If you have been reading the papers or watching the news over the last 30 years you will be familiar with this phenomenon.
I am not an economist, but I think Henry Ford was on to something when he doubled his workers’ wages so they could afford to buy the Model Ts they were making. When more and more of your labor force works in retail outlets, then they can only earn a wage sufficient to purchase low cost goods produced by struggling workers overseas. As we here in Orange County consider how to devote our space, energy, and investments in economic development, we should include as a key criterion the entropy change of the enterprise. Using this lens to evaluate our economic development plans would steer us away from attempting to lure the next big box store to town and allow us to focus on entropy reducing activities like farming, food processing, light manufacturing, and high-tech start-ups flowing from UNC. We need more Burt’s Bees and Crees and fewer Wal-Marts and outlet malls. In the long term, this approach is the key to picking up our marbles and prospering in the future.
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