Saturday, September 02, 2006

Diamonds

Even in the heady world of multinational enterprise, De Beer’s is a rarified case, a truly odd beast. It runs on something like a 17th century colonial economic model, probably resembling Leopold’s Congo as much as, say, Dow Chemical or the like. Its business model is based on a near total monopoly on the world diamond market, and artificially created scarcity.

Or at least it was. The whole thing started to unravel a few years back, when the company’s longtime head died. That and the appearance of diamonds outside their sphere of influence (from Australia and elsewhere) has shaken the company badly—they now control slightly less than half the global diamond trade, a situation anathema to a business model dependant on monopolization.

Like any good monopoly De Beer’s operates quietly enough. Aside of extraordinarily plush advertising, the company is publicly visible mostly as a diminutive office in London through which something like half the world’s diamonds used to pass (its actually headquartered in Johannesburg). Anyone controlling enough of something doesn’t need to worry too much about selling. De Beer’s has always determined terms of sale unilaterally. Commercial buyers are lucky to have the chance at stones, and are expected to pay whatever is asked.

All this would be little more than an economic inconvenience to Western consumers, if the monopoly did not make the diamond trade almost completely opaque. It’s just about impossible to know where a diamond came from—if it funded an African civil war you’d never know it. The proliferation of conflict diamonds just adds to the colonial overtones of the business, making African warlords and dictators equivalent to the local stooges once employed by European colonial administrations.

But this too is changing. A new system of conflict-free certification is beginning to take hold. There’s nothing perfect about it, but it at least represents a chance for other diamond traders to begin taking up the business practices of the last century, if not the current one.

De Beer’s itself is an almost extravagant vestige of colonialism, a mechanism for the satisfaction of Western luxury tastes designed to operate necessarily at the expense of the third world, while bilking its customers on artificially overvalued goods. It’s a thief on both ends. The effect, really, was remarkable, and still is: a high value commodity from developing countries was sold to wealthy Western consumers in a way that benefited neither of them.

It would be interesting to know how much the company contributed to constructing the cult of the diamond in the West. It wouldn’t be so surprising to find out that they created the market as much as cornered it. In any case, that they’ve lost quite a lot of it is a good thing by almost any standard. With luck, diamond rich African nations will benefit properly from a newly opened and better regulated market—and the rest of us might more easily avoid funding amoral monopolists, tin-pot dictators, and African warlords. I reckon that’s pretty hard to argue with.


**Thanks to a good friend for pointing me toward this one…. Have a safe trip home, and have fun on that side of the pond.

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