Tuesday, August 21, 2012

The Diamond Industry Pushed the Blood Diamond Idea

The diamond industry is an interesting tale from the old British Imperial days that involves daring Brits in exotic lands, horrible industrial practices, and rampant thefts which eventually created a ticketing system for work that laid the foundation for apartheid. A simple discovery of an odd looking stone started the economic engine in South Africa, which was pushed into overdrive when the first gold ores were discovered years later. Diamonds are also a giant scam that represents humanity's materialism at its worst.

Rocks of carbon that are made artifically for industrial use are mined in rough conditions for a natural product, putting many men's lives at risk, just so men and women can wear them on their body to display their wealth or signal status. This Atlantic article from 1982 about the diamond scam is so good that I am useless in piggybacking on it, but it does reveal a potential organized market operation cloaked in the name of humanitarian compassion. The blood or conflict diamond designation and public relations campaign just might be a mechanism for the DeBeers diamond cartel to exclude diamonds from the diamond market to keep prices artifically high.

Diamonds have little real value. The Atlantic article is titled "Have you ever tried to sell a diamond?" for a reason. The reason being they are worth maybe 25% of their price. Diamond mark up is horrendous, and if you try to resell them, a jeweler would give you maybe 25% of the 'appraised' value. One of the best places to buy diamonds now is on craigslist. I'm not joking. A lot of saps or jilted ladies have broken engagements, and they all think the jeweler will give them full or close to full cost for returning the item. Nope. The store offers 20-25% of the purchase price. The now pissed off person puts the item on craiglist for sale at half the purchase price. This is legit. You can take the item to a jeweler for verification and appraisal before buying and get a hugely discounted diamond item for you or your lover. In 2005, a friend of mine did this, spent 3K on a ring appraised at 8K, and his wife still doesn't know. Diamonds are forever a scam.

The Atlantic article did mention Aussie discoveries of diamonds, and that it might pose a challenge for DeBeers. They had already pesuaded the Russians to sell through them. The DeBeers company found a way to cordon the Russian sources up until 2000. DeBeers had a pretty good hold on distribution of Russian and Aussia diamonds until 2000, and then a further erosion of their hold happened in 2006.

If you want to see how powerful the DeBeers company is, check out the economic history of Botswana. Botswana is not a nation but a mining colony of DeBeers. This is a bit of a Michael Moore style circumstantial evidence reach, but the loosening of non-South African diamond sources posed a problem for DeBeers as 2000 approached. Another problem was the discovery in post-colonial African nations of other diamond sources. Unlike Russia or Australia, those nations had poor foreign investment, had nationalized foreign owned companies, had driven out foreign expertise, had poor institutional control, and would be incredibly difficult to talk into coming into the DeBeers distribution network. 

Outside of the DeBeers network and desperate for money, wouldn't the African countries and the warlords forever fighting for power sell diamonds at any price regardless of market reaction to raise money? Wouldn't African countries not care about the marginal revenue on their diamonds as they used slave labor and kept resource stripping costs to a minimum? Yes and yes. The market supply for diamonds would be flooded, and DeBeers and the diamond cartel would suddenly lose money on their investment.

This is where the DeBeers company and the diamond cartel stepped into action. The UN and a wonderful NGO called Global Witness brought to light the issue of warlords using horrible procedures to procure diamonds and fund more violence and destruction. They came up with a great name for these warlord controlled gems: blood diamonds.

What a great name? Who would want blood diamonds? It conjures up images of wearing blood. This compassionate NGO pushed for avoiding blood diamonds (changed to conflict diamonds later). In an incredibly quick move, the diamond industry introduced a certification process that would guarantee that you the consumer were not buying evil blood diamonds. It's amazing how quick the diamond industry shot into action. For the diamond industry, the certification proces and campaign against blood diamonds was a way to exclude non-DeBeers controlled diamonds from the market. Through media manipulation (the movies Blood Diamond, Die Another Day) and careful news reports, women didn't want blood diamonds. Men didn't want to be known as contributing to African oppression. This was pretty smart by DeBeers to appear both compassionate and responsive to a humanitarian issue.

Where could DeBeers have learned this? Maybe they picked up the idea to use a moral outrage campaign to sway consumer decisions after watching the anti-apartheid organizations use economic sanctions to pressure South Africa for years. DeBeers has mined for decades in South Africa. They seemed to take a page out of their opponents' playbook to help keep their market supply sold through legit channels to average Joe consumers stable.

The reason I suspect the diamond industry to be behind this PR campaign is that mining is a dirty business. The arguments against blood diamonds could be made against many natural resources recovered in the developing world. Without 1st world environmental and worker safety protections, most of the raw materials produced in Africa, South America, the Arab world or Asia come with the same ethical problems as blood diamonds. The blood diamond crusade did not expand to all natural resources. Oil drilled in Muslim countries finances terror, anti-women, and anti-gay schools and governments. Raw materials of all sorts fund African warlords (and countless anti-egalitarian ideas).

Rare earth metals are mined with huge environmental costs in China. No one cares. This was a specific campaign (diamonds) with a specific winner (existing diamond producers) targeting a specific audience (upper + middle class 1st world women). This might be a stretch, but the pieces seem to fit with the DeBeers company's prior methods of controlling supply, the modern obsession with compassion for strangers in 3rd world countries + the media saturated 1st world. They couldn't talk the African warlords into joining the club so they shamed everyone from buying their big money export and used tools of the modern world to exclude non-DeBeers diamond sources.

As I wrap this up, let me set up another example. Something that the mainstream media could push, but would never think about as they are cowards and this industry's current power is immense. Coltan is a mineral mined in Africa, especially in the Congo that has killed 5 million Congolese (mostly children) and enabled warlords to keep a civil war going as well as an insane number of murders and rapes per hour. Coltan is used in products that also contain rare earth minerals mined with devastating environmental consequences in China. These minerals create parts assembled in China by Foxconn workers who work near in near slavery conditions. The superstar product is used maybe two years by 1st world consumers. That supply chain and assembly is just as bad if not worse than blood diamonds in global pain and suffering cuased for this product's creation, but no one would ever call it a 'blood Iphone'.

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