I have been trying not to forward stuff here from FoRK, but this
is fascinating stuff, and I've always wondered about this company.
(FoRK is the list that inspired me to make fogo, for those of you
who don't know; http://www.xent.com/ .)

Apologies to the few of you who already got this from FoRK...

(if I do this again in the future, should I bounce/resend the
message instead of forwarding it so duplicate msgid filters can
nuke the second copy, I wonder? Or would that confuse people?)

----- Forwarded message from Mike Masnick <[email protected]> -----

Date: Wed, 27 Sep 2000 00:27:57 -0700
From: Mike Masnick <[email protected]>
Subject: Diamonds are...
To: [email protected]

Okay, so for no clear reason I've been somewhat fascinated with the whole
De Beers Diamond Cartel concept for many years.  I think someone once (when
I was a kid) told me that they had their own secret army, and any company
that has its own *army* (and a secret one, no less) seemed infinitely
interesting to me...

I thought, following on the whole marraige discussion that this article
from Salon might be of interest to some in that it talks all about De
Beers, and the fact that diamonds as they are currently perceived is mostly
due to a huge marketing push from the company not so long ago... They also
point out why the De Beers cartel is being threatened these days, so for
those of you males who were considering popping the question, it might make
sense to give it a few years for the diamond prices to drop... How romantic
is that?

-Mike

http://www.salon.com/business/feature/2000/09/27/diamonds/print.html

Not forever

The death of South African diamond magnate Harry Oppenheimer last month
might mark the end of global domination for one of the world's most
infamous cartels.

- - - - - - - - - - - -
By Susan Emerling

Sep. 27, 2000 | Nothing lasts forever and with the death this August at 91
of Harry Oppenheimer, the South African diamond magnate and former CEO of
the De Beers cartel, the end of an era in which the world's diamond supply
is exclusively controlled by one company and one family may be at hand.

In his 27 years as CEO of De Beers, from 1957 to 1984, Oppenheimer became
one of the world's wealthiest men. During his tenure, De Beers controlled
between 80 and 90 percent of the world's diamond supply. His many
companies, most notably Anglo-American Trust and De Beers Consolidated
Mines, at one point constituted 54 percent of the South African stock
market's total assets. He was even one of the first white people who Nelson
Mandela wanted to see upon his release from Robben Island Prison --
although this was perhaps more a sign of Oppenheimer's willingness to
recognize the significance of the African National Congress for the smooth
running of his business than testament to his great moral virtue.

Oppenheimer inherited control of De Beers from his father, Sir Ernest, who
seized the reins of the diamond empire of Cecil Rhodes -- eponymous founder
of Rhodesia and the prestigious Rhodes Scholarships -- in 1929, mere months
before the U.S. stock market crash. Although it was Sir Ernest who built De
Beers into a worldwide cartel, it was Harry Oppenheimer who strengthened
his father's legacy through his ingenious sculpting of the public's demand
for the rock. Since inheriting the chairmanship two years ago, Harry's son,
Nicky, has been charged with maintaining the cartel's market domination
while appearing to offer the transparency a modern business demands.

But Nicky has a rough road ahead. The growing outcry against the marketing
of so-called conflict diamonds or blood diamonds -- defined by one human
rights organization as "diamonds that originate from areas under control of
forces that are in opposition to elected and internationally recognized
governments" -- expanding antitrust legislation in both the United States
and Europe, and the rise of new diamond suppliers outside De Beers' realm
of control are combining to undermine the company's hitherto unchallenged
domination of the world diamond market. But never fear -- following his
father's example, Nicky Oppenheimer hopes to market De Beers out of its
current troubles.

Despite its elite status, the diamond, which can be found in abundance from
southern Africa to Australia to northern Canada, is not the rarest of gems.
With no intrinsic value, all a gem-quality diamond has to offer is the
perception of its preciousness. As a symbol of eternal love, the tradition
of the diamond engagement ring has become so pervasive that it's hard to
believe that this is a fairly recent phenomenon. And an extremely
calculated one -- the result of a marketing campaign developed at a time
when the demand for diamonds had sunk to an all-time low and an increasing
supply threatened the precious (as opposed to semiprecious) nature of the
stones.

In 1938, nine years after seizing control of De Beers, in the wake of the
Depression and with Europe bracing for another world war, Sir Ernest
Oppenheimer found himself with no place to market his wares. Rather than
risk a plunge in the status and price of diamonds, he sent 29-year-old
Harry from Johannesburg, South Africa, to New York to meet with the N.W.
Ayer advertising agency. The plan was to transform America's taste for
small, low-quality stones into a true luxury market that would absorb the
excess production of higher-quality gems no longer selling in Europe.

As Edward Jay Epstein outlined in his 1982 book "The Rise and Fall of
Diamonds," N.W. Ayer saw the challenge as one rooted in mass psychology,
meticulously researching the attitudes of American men and women about
romance and gift giving. From this research, the slogan "A Diamond Is
Forever" was born, launching one of the most brilliant, sophisticated and
enduring marketing campaigns of all time. Without ever mentioning the name
De Beers, the campaign set out to seduce every man, woman and child in
America with the notion that no romance is complete without a rock -- and
the bigger the rock, the better the romance. That men also now had a way to
show the world how much money they made was an added bonus.

With the help of gossip sheets packed with stories of diamond rings and
romance, De Beers transformed the United States into the premier market for
the world's gem-quality diamonds. Once it conquered the hearts and wallets
of America, it set out to conquer Japan and Brazil, and when World War II
was over, it began the reconquest of Europe.

The slogan "A Diamond Is Forever" was also designed to convince the
purchaser that although a diamond is a good investment, for sentimental
reasons no rock should ever be resold. Given the continuous mining of new
stones -- not to mention the half-billion or so carats that will never
rust, break or wear out walking around on the hands, necks, ears and lapels
of hundreds of millions of women -- the last thing De Beers wants is to
have previously sold stones coming back onto the market.

De Beers has enough problems dealing with the oversupply of new diamonds.
In the mid-1950s De Beers was overwhelmed by a flood of small diamonds
pouring out of recently discovered mines in the Soviet Union. After nearly
a decade and a half of convincing America of the importance of larger
stones, suddenly the company needed to create a virtue out of the
previously disparaged small diamonds. To accomplish this, De Beers invented
the "eternity ring," a single, unbroken band of up to 25 evenly matched
small stones. The ring was introduced in the early '60s as the best way to
renew vows in the home stretch of a long marriage and the best way to wear
diamonds without the ostentation of big stones. Today, the United States
absorbs 50 percent of the world's diamonds, with an estimated 70 percent of
American women owning at least one rock.

As it turns out, this ideal of perpetual ownership is a healthy delusion
for the owners of all but the rarest and most expensive diamonds. Despite
the illusion that it retains its value, a diamond can only be sold for less
than its wholesale price, not what one would consider a good return on
investment.

Nonetheless, the rock is alive and well as a status symbol in America, and
the current cachet of colored diamonds has added an extra degree of elitism
to the raging luxury marketplace. Despite what the industry refers to as
"competing luxuries" (four-figure handbags, five-figure watches and
six-figure cars), this fall's marketing blitz for the rarer-than-rare black
diamond will ratchet up the stakes even further.

But manipulating perception isn't the only way De Beers has maintained its
control. As has been extensively reported in a number of publications,
including the Economist, the Atlantic Monthly and Stefan Kanfer's 1993 book
"The Last Empire," De Beers has also manipulated an artificial sense of the
diamond's scarcity by buying up new mines, freezing out challengers and
mopping up excess supply. Through a web of intricately intertwined
businesses, De Beers successfully created a cartel in the strictest sense
of the word, staving off dreaded price fluctuations by controlling
everything from the stones' removal from the ground to their delivery into
the hands of jewelers.

The Central Selling Organization in Europe handles the purchasing and
sorting of stones from its far-flung field offices, then sorts and values
the stones in preparation for sale. The Diamond Trading Company in London
channels first-tier sales through an arcane ritual of "sights," where 125
handpicked buyers, or "sightholders," meet in London 10 times a year for
the privilege of purchasing a nonnegotiable, preselected box of assorted
unpolished stones on an all-or-nothing basis. The Syndicate in Israel, as
well as cutters and polishers in India, Belgium and New York, process the
stones for the next tier of buyers.

But now there are new pressures on the horizon for De Beers that are
forcing it to back away from abundant supplies of some of the world's
finest raw diamonds in order to preserve its image on the battlefield of
public perception. Using the phrase "conflict diamonds" or "blood
diamonds," Global Witness and the United Nations, among others, are drawing
attention to the cost of human suffering associated with diamonds, forcing
a level of accountability into an industry that has been notoriously low on
disclosure.

By focusing on the carnage associated with conflict diamonds these groups
have forced De Beers to distinguish between diamonds mined in peaceful
countries controlled by legitimate governments and diamonds harvested at
gunpoint by rebel forces in places like the Congo, Sierra Leone and Angola,
where endless battles have turned some of the world's most minerally rich
countries into what the United Nations Children's Fund has called the worst
places on Earth to be a child. The money generated from the sale of
conflict diamonds goes to buy more guns, which perpetuate the battles over
control of the diamond mines. Until this recent pressure, De Beers admitted
in its public statements and annual reports that it was the purchaser of a
large portion of Angolan stones.

In an ironic twist on De Beers' longstanding ability to control
perceptions, the company is now attempting to transform its discomfort into
a marketing virtue, seizing this moment to develop a consumer brand
identity out of its previous anonymity. De Beers announced earlier this
year that it intends to embargo all conflict diamonds and provide a
certificate of each stone's origin with each sale. To ensure compliance,
the company announced its intention to hold its sightholders to the same
standard. In doing this, De Beers is hoping to establish itself in the
public's mind as the dividing line between the forces of good and the
forces of evil, a self-appointed clearinghouse that will prevent buyers
from bloodying their hands in the simple pursuit of luxury. From now on,
you'll know if that big rock your fianc� just put on your finger was dug
out of the ground by brutalized children or waddled out of a war zone in a
smuggler's rectum.

Human rights groups have praised De Beers' promise to embargo the conflict
diamonds as the only ray of hope on a very bleak landscape, but the embargo
still fails to address the simple truth that one of the diamond's historic
virtues and liabilities is that it packs a lot of value into a very small
package. This is highly transportable wealth. Millions of dollars can be
walked across a border to a nonconflict zone in a sock and multimillions
can be carried in a small suitcase. Because of the extremely high quality
and large size of the diamonds being mined in Angola and Sierra Leone,
allowing such a profitable and abundant supply onto the open market would
undermine De Beers' control of its cartel.

Unfortunately for the world's policing agencies, the good stones and the
bad have been mixed together for so long that it is virtually impossible
for all but highly skilled gemologists to tell them apart. Global Witness
holds that it is not as difficult as generally believed to distinguish the
origin of the raw stones, but even it concedes that once the diamonds are
polished, the traces of their geographic origins are erased. Conflict
diamonds account for 15 percent of the world's supply, an estimated 50
percent of which ends up in the United States.

De Beers' use of the branding process to guarantee access to guilt-free
diamonds comes at a time when the European Union and the U.K. are trying to
implement antitrust regulations modeled on those in the U.S. -- where De
Beers has already been repeatedly investigated and indicted for its trade
in industrial diamonds. In part due to the Department of Justice's
inability to win a conviction against De Beers because of the
inaccessibility of evidence, Congress passed the 1994 International
Antitrust Enforcement Assistance Act -- aimed at opening doors for the
sharing of information on antitrust cases with foreign governments. Citing
De Beers' anti-competitive practices, the Department of Justice continues
to block the company from directly conducting business in the U.S.

De Beers appears to have realized that the writing is on the wall for its
cartel, in any case. This July, with the help of American management agency
Bain & Company, De Beers announced a radical new business plan that
attempts to deal with all of De Beers' problems at once. In addition to the
certificates of origin, De Beers announced that the company intends to end
the system of stockpiling diamond supplies to control prices. By reducing
the assets it has tied up in the stockpile from $3.9 billion to $2.5
billion, it hopes to increase profitability and free up extra cash to spend
on the advertising of diamonds as a branded luxury item.

De Beers will use the innocuous sounding Diamond Trading Company as its
brand name, identified by its "forevermark" logo. Evidenced by its recent
request to meet in Europe with Assistant Attorney General Joel I. Klein of
the antitrust division, De Beers may realize the desirability of resolving
the antitrust impediments to becoming the Coca-Cola of diamonds, despite
the cost. Klein has so far turned down the invitation.

De Beers' competitors have been emboldened by this weakness in De Beers'
fa�ade. In 1999 Tiffany & Co., a sightholder and one of the world's largest
buyers of diamonds, made a side deal with Canadian miners for an
independent supply of diamonds, betting that the Tiffany & Co. brand name,
with its signature pale blue boxes and white ribbons, would be just as
sparkling as a De Beers logo. To make matters worse, Australia, which has
discovered enormous diamond reserves in its Argyle mines, has begun to sell
its stones directly on the world market, bypassing De Beers entirely.
Certain Russian mines have also allowed their distribution contracts with
De Beers to lapse in an attempt to take their goods straight to market.

In the meantime, De Beers is carrying on the Harry Oppenheimer tradition of
mentoring the diamond buyer through major life decisions. Using its Web
site, it answers all the objective questions about cut, clarity, color and
carats, while paternalistically educating the consumer about the symbolic
meaning of diamonds, an appropriate salary-to-expenditure ratio and how to
glean the maximum psychological impact from the presentation of the gift.
It offers 12 original "Ways to Surprise Her," ranging from having "a cake
on display in the window of her favorite bakery with your personal message
and topped with the diamond" to the unimaginably ironic: making "the
diamond a game piece during a game of Monopoly."

Try it. It worked for Harry Oppenheimer.


----- End forwarded message -----

--
Gerald Oskoboiny <[email protected]>
http://impressive.net/people/gerald/