The Rise and Fall of de Beer’s Diamond Cartel and Apartheid
Submitted By alvitad03
The Rise and Fall of De Beer’s Diamond Cartel and Apartheid
Introduction Diamonds have always been seen as rare and precious which lead to its expensive price tag. Prior to the 19th century diamonds were rare and scarce because there were only two places on Earth that they could be found and even nobility found them difficult to acquire. In America, Diamonds are seen as the jewel of preference for engagement and wedding rings, as well as, the signature stone to have in your jewelry collection. De Beers and Oppenheimer have succeeded in fostering the image that diamonds are the ‘must have’ jewel through aggressive advertisement campaigns. Unfortunately, the demand for this jewel has resulted in apartheid and blood diamonds. I will explore the creation of the diamond cartel, the catastrophic results of the industry on its mother countries, and the decline of the diamond cartel.
The Rise of DeBeers Prior to the 19th century, most of the diamonds were found in Brazil and India until an abundant discovery was made in South Africa around 1867. The diamonds were so plentiful that miner’s fond them lying on the ground like stones and were easily collected. When the surface supply was consumed, miners began to dig to meet demands. As word spread of the new diamond discovery miners started to lay claim to the different areas. Miners soon found the expenses of extracting the diamonds excessive and some miners merged to form small companies to offset their costs. “De Beers Mining Company was founded by Cecil Rhodes in 1880” (Unknown, p. 1). Rhodes use to rent mining equipment to miners and used the money to purchase smaller mining operations until De Beers owned all of the South African diamond mines by 1887. “The ‘Diamond Syndicate’ was an alliance of merchants in Kimberly who abided to Rhodes terms of business” (Unknown, p. 1). Through the ‘Diamond Syndicate’ Rhodes was able to control the distribution channels which help bolster and maintain the rare and scarce image of diamonds, which would keep prices inflated.
The Rise of Oppenheimer Ernest Oppenheimer was a German immigrant who found wealth through the diamond and gold mining industries in South Africa. Oppenheimer dominated the gold industry and wanted to expand into the diamond cartel.
DeBeers board members viewed Oppenheimer as an overambitious nouveau riche, and blocked his way into the board for decades. Not to be discouraged, Oppenheimer gradually bought blocks of DeBeers shares whenever they came up for sale, until finally he was one of two most significant single shareholders, the other being Solly Joel, his friend and business partner. Oppenheimer gained full control and ownership of DeBeers in 1926. He was later named chairman and formed a larger company, the Diamond Corporation. (Unknown, p. 2) DeBeers created a global monopoly by having suppliers sign an exclusivity agreement with CSO (Central Selling organization). The CSO acts as the clearing house for DeBeers and operates in London. Buyers have an opportunity to purchase diamonds ten times a year on a ‘take it or leave it basis’ (Unknown). In other words, if buyers do not accept the package of diamonds that they are offered at DeBeers price, the may lose favor with DeBeers and may not have another purchase offer extended to them. When other diamond deposits were discovered in other countries DeBeers bought as many mines as they could to continue their control over the gem industry. DeBeers conducted a global marketing campaign to create the image that diamonds are the premiere gemstone to own. DeBeers biggest consumer is the United States. DeBeers used Hollywood to ingrain this idea into the psyche of the American public by using diamond encrusted jewelry on famous actresses to increase their popularity. Through DeBeers marketing, the diamond became the premier stone for engagements and wedding rings in America because the United States had a stable economy that could afford to buy them on a continuous basis. Other countries preferred plain bands or birthstones as their wedding ring of choice and were more affordable than diamonds. (Unknown, SAHO: South African History Online)
The Rise and Fall of Apartheid Apartheid “literally means apartness, The Afikaans term for pre-1994 policies of racial separation, a system that produced highly segregated socio-geographical patterns” (Blij, Muller, Nijman, 2012). Apartheid started in the 1700 when European settlers arrived in Africa and forced the indigenous population unto less desirable lands and used them as forced labor (Unknown, SAHO: South African History Online). Eureka was the first diamond mine discovered in Hopetown, South Africa and the native population was used to assist in the mining operations while being paid little or nothing. The Afrikaan workers were allowed to live on the land now owned by the settlers and mining companies and their housing was paid out of their meager wages. Afrikaans were issued passes and their movement controlled to keep them confined to the area so that they would not have any choice but to stay and work for the miners. By the late 1980’s -1994 there were protests against the unethical treatment of the Afrikaan people and the poor working and living conditions. The United States and other countries applied sanctions against the South African government and celebrities staged boycotts from entertainments venues to put pressure on the government to end Apartheid. Apartheid officially ended in 1990 but the results did not become prevalent until 1994 when Nelson Mandela was elected (Unknown, SAHO: South African History Online).
The Fall of DeBeers DeBeers’ monopoly over the diamond trade is waning. Diamond mines have been located in other countries like Canada, Russia, and Brazil. In former times DeBeers would have gone into these countries and bought the right to these mines and added them to their monopoly. However, in today’s society the governments of these countries were able to block DeBeers from adding these new mines to their monopoly and set up an open trade market with quality stones for a greatly reduced price. Buyers who fell out of favor with DeBeers or are not satisfied with ‘take it or leave it’ operation standard now have an alternative. The open-market has caused a decrease in DeBeers’ profit margin. DeBeers has had a 10% decrease in recent years going from 85% market share to 75% with a steady decline. (Unknown, SAHO: South African History Online) DeBeers has encountered legal resistance from the United Nations for human right abuses and illegal diamond smuggling practices and in the United States for conspiring to violate competition law. The United States filed formal charges against DeBeers and was awarded $295 million to settle price fixing and restraint of trade lawsuits brought by individuals who had bought over-priced diamonds from cartel customers and jewelers in the United States. (Flynn, 2008)
The DeBeers dynasty and way of doing business is entering its final days. The company may continue to function but their profits will begin to diminish. As more global mineral deposit resources are located, the more open-markets will develop and the price of gems will fall, making diamonds more affordable. The pressures from the United Nations regarding human rights violations and the trafficking of conflict diamonds will cause DeBeers to restructure their traditional business practices or continue to experience decline in sales, public backlash, and other legal retaliations.
Blij, Muller, Nijman. (2012). Geography: Realms, Regions, and Concepts. Wiley.
Flynn, L. (2008, June 1). ZNET: A Community of People Committed to Social Change. Retrieved December 4, 2013, from Nambia: Exposing The Corrupt Practices Of The DeBeers Diamond Cartel: www.zcommunications.org/contents/52483/print
Unknown. (n.d.). De Beers and Beyond: The History of the International Diamond Cartel. Retrieved November 2013, from De Beers and Beyond: The History of the International Diamond Cartel: Pages.Stern.nyu.edu/~lcabral/teaching/debeers3.pdf
Unknown. (n.d.). SAHO: South African History Online. Retrieved December 4, 2013, from Pass laws in South African 1800-1994: http://www.sahistory.org.za/south-africa-1806-1899/pass-laws-south-africa-1800-1994