De Beers, the Manipulative Super-powers of

Diamonds
Diamonds are the most priced possession for many people, especially for women. They are said to
be, “A Woman’s Best Friend”. One of the main reasons why people have a natural infatuation and
fondness towards diamonds is that they have always appeared to the common man as precious and
rare and the feeling of owning something rare naturally gives people a lot of pleasure.

However, if some day we were told that the diamonds we own are not rare and that they are found
in abundance in several parts of the world. Furthermore if we were told that it is possible that the
prices of these “Precious Stones” could crash all of a sudden, i am very sure that many people would
have a great love loss for diamonds. A detailed research on the validity of the above doubts raised,
made me ponder a lot and led to this revelation.

De Beers and the various companies within the De Beers family, is by far the largest company in the
world in the segment of diamond mining, diamond trading and industrial diamond manufacturing.
The company was founded in 1888 by Cecil Rhodes. In 1889, Rhodes negotiated a strategic
agreement with the London based Diamond Syndicate, which agreed to purchase a fixed quantity of
diamonds at an agreed price, thereby regulating output and maintaining prices. The agreement soon
proved to be very successful. For example during the trade slump of 1891-1892, supply was simply
curtailed to maintain the price. Rhodes’ only worry was that there should not be any competition in
their line of business. He once said the following to his shareholders in a meeting:

“Our only risk is the sudden discovery of new mines, which human nature will work recklessly to the
detriment of us all.”

Thus from the very beginning it was clear that the company believed in the practice of restrictive
trade and monopoly. The company opened an office in London from where they traded diamonds.
This was done in a way that never did the supply suffice the demand and thus prices were pushed
even though diamonds were in abundance in their mines. In 1902, a competitive mine named
the Cullinan mine was discovered; however its owner refused to join the De Beers cartel. Instead,
the mine started selling to a pair of independent dealers named Bernard and Ernest Oppenheimer,
thereby weakening the De Beers cartel. Production soon equalled all of the De Beers mines
combined. Ernest Oppenheimer was appointed the local agent for the powerful London Syndicate,
rising to the position of mayor of Kimberley within 10 years. He understood the core principle that
underpinned De Beers success, stating in 1910 that:

“Common sense tells us that the only way to increase the value of diamonds is to make them scarce,
that is to reduce production”

Thus, eventually, Oppenheimer joined the De Beers cartel and became its chairman after buying a
seat on the board. From now on De Beers focussed on the U.S market along with making sure that
either other mines joined their cartel or else they were not able to function. However, it could not
legally work in the U.S as it was a virtual monopoly and thus all trade was executed through the
London office. In 1920, a mine called Murfreesboro was found in the U.S but Ernest Oppenheimer
had influenced its functioning. It is said that minutes after a meeting of Oppenheimer with the
authorities in the office of J P Morgan a phone call went to the mine superintendent telling him to
shut down the mine and sustain closure claiming that the mine was uneconomical although it was
not. Thus it was seen that Oppenheimer even coaxed the American authorities to not open a mine
although it would have been beneficial for them in order to keep his monopoly and the safety of the
cartel intact.

In Africa, they purchased most of the mines which were being discovered but their main problem
arose when the tribals started selling diamonds found along the coastline in the bed rock. To counter
this they opened buying offices in jungles where they sent their merchants with bags full of money
and food and exchanged them for diamonds. This was by far one of the most successful ways in
stopping the sale of diamonds in this way and was a very unique approach adopted at that time.
Another problem which existed was the stealing of diamonds by the workers there. To stop this De
Beers hired detectives who tortured people very harshly only on the basis of suspect. The torture
done on them was immense and can be compared to the torture in Guantanamo in the recent past.
Due to these reasons no one even dared to pass the area owned by De Beers leave alone stealing.
The De Beers faced another challenge during the World War II period. The nations at war needed
industrial diamonds for their weapons and as South Africa was one of the allies of U.S and Great
Britain, only the allied powers expected to get these diamonds. However, the industrial diamonds
were also being supplied to Hitler who was leading Germany against the allied powers. The U.S and
its allies tried to influence De Beers to shut down their mines in order to make sure that no
diamonds reach Germany but the De Beers did not agree to that. Moreover, they even influenced
investigations on how those diamonds reached Germany as they would be found guilty if it was an
independent investigation. Furthermore, De Beers even found out a business proposition out of the
war. Their advertisement during the war tried to emotionally convince the Americans asking them to
buy diamonds as that contributed to their mining which resulted in supply of industrial diamonds to
the U.S military, who needed them desperately for weapons.

After the World War the De Beers came up with a fantastic advertisement campaign where they
used the glamour of Hollywood and the Royalty of U.K to portray to the consumers that how special
a diamond could be for a woman. They planted ideas of diamond rings and necklaces on special
occasions in a woman’s life like their anniversary, birthday, etc. There were specific scenes in movies
at that time, produced by De Beers portraying that how men could win over women in every
possible way by gifting them diamond jewellery. The next fear they had was that people might sell
their diamonds after using it for some time. To counter this they came up with a campaign that said
“Diamonds are Forever”. This made sure that people would hoard diamond with themselves thinking
it is precious and even though its value would increase it is important that they kept it with
themselves. Thus De Beers controlled African stones and American consumers. These advertisement
campaigns are hailed as the most successful ones in the world and their success can be seen as they
still have relevance till today.

In the early 1950’s the Soviet Union also found a mine in Siberia and De Beers faced yet another
challenge as they did not have great access to that part of the world. If the Russians had dumped
their diamonds in the markets it would cause the prices of diamonds worldwide to crash but they did
not do that and instead did business with Oppenheimer joining the cartel and only making it more
powerful. It is believed that De Beers offered them more money than the diamonds would actually
fetch in the market just to keep them out. In this way they bought all their diamonds. These
diamonds were basically mid sized. In order to stimulate the demand for such type of diamonds they
came out with the “eternity ring” in the market which would consume all these diamonds and the
consumers felt that they were getting a new product. Thus, De Beers, in order to stimulate demand
for their stocked diamonds created a market for them. As business was increasing the diamond
cartel needed to find a place where cheap labour was found to cut these diamonds. Surat in India
sufficed their demand and had over 750000 cutters out of which 100000 were children below 13.
These cutters were made to work very hard often upto 15 hours a day with very less wages. The De
Beers termed this way of working as “More flash for less cash”. Thus, the ways of functioning of De
Beers, although successful and a great way to do business, was very unethical and objectionable and
according to me shows their disinterest in caring about people who work for them which according
to me should be a priority.

The next challenge faced by De Beers was when Australia found a mine in Ashton and was looking
forward to operate it with independence. Oppenheimer at this stage threatened the Australian
government that it would flood the market with the kind of diamonds produced in their mine if they
would try to sell it in the open market. This would ensure that demand for that diamond would not
be a lot as its prices would crash. At the same time Oppenheimer bought stocks in key Australian
companies and started alliances and thus started lobbying the government to give the mine in its
control. Eventually they got its control too.

In the early 1990’s General Electric(G.E), a U.S company started the manufacturing of synthetic
diamonds. Initially it was only making industrial diamonds but as the company wanted to enter into
the manufacturing of gems it sent shivers down the spine of De Beers. G.E had an advantage that it
could make all the diamonds of the same quality and size and even give it colours. However, this
expansionary plan of G.E was shoved when no less than the chairman of G.E ordered it to be
stopped. It is alleged that this project was stopped because of an understanding between
Oppenheimer and G.E.

The U.S has very tough anti-trust laws to prohibit monopolistic trade practices. The law called the
Sherman law states that, “Every contract combination or conspiracy in restraint of trade is hereby
declared to be unlawful.” Following the G.E-De Beers happening, there were several suits in the
courts of America against De Beers but it was very difficult to bring a South African country to
American justice. Moreover, De Beers assured that whenever a red flag would go up in the U.S
against the company no official of theirs would even step in the country.

Ever since the De Beers have been functioning smoothly with occasional voices of the government
appealing it to nationalise their mines but this has not happened because it is not easy to get the
richest man of Africa to do what the government wants because of the great power he has. De Beers
nearly has 80% of the market share. It is also not possible to correctly tell the amount of diamond
reserves in the world and the amount by which the prices of diamonds are inflated because there is
a lot of secrecy in the way of functioning of the diamond cartel. Thus, this has led to the De Beers
becoming a super power in the business of diamonds but not without lots of doubt in the way they
carry their work.

Lastly it is only apt to say that the person who is deceived plays an equal part in the deception along
with the deceiver but as people become more aware there are certainly many who question such
ways of carrying business. The political situation too is becoming better and with true democracy
kicking in most parts of the world it is going to be a tough ride for De Beers in the future. Thus there
is a silver lining in the end that such ways of functioning can become obsolete very soon and perhaps
the disintegration of the De Beers cartel is a possibility, especially after the American government
has taken stringent actions against the functioning of such a cartel and has started encouraging
competition. Off late the management of De Beers too has conceded that there is no possibility to
carry on business in the ways it has been over the years and the current chairman of the company,
Nicky Oppenheimer too has said that he is looking to do business in a new way. I personally hope the
new direction is one of ethics and morality and that diamonds do not lose their sparkle and dazzle to
wrong ways of doing work, especially with something we have so much of love and attraction from.