Heart of DeBeers: Conflict Diamonds and Kanye

Put this video on play in the background as you read the post:

It says a lot about a post when Kanye’s involved right off the bat.

I just saw Blood Diamond.  I thought it was a great movie, and obviously a great segue into talking about the worldwide diamond industry.

There have already been a lot of important things said about this movie and about conflict diamonds.  Here‘s one.  Here‘s another.  And here’s a third.  For those not in the know, conflict diamonds are stones purchased to fuel civil war in Africa or other hotspots.  In return for money, guns, and ammunition to fight civil wars, smugglers sell diamonds into the prestegious houses in Amsterdam and London.  I hate how the world works in Blood Diamond (according to stuff that I’ve read, close to real life, as well.)  I love how clearly it shows economic trends.

Any country that has natural resources falls prey to what is called the natural resource curse.  I wrote a little bit about this in my undergraduate economic honors thesis with resepct to Russia and its oil industry.  Any country that has an abundance of natural resources, as Sierra Leone does, tends to have less economic growth than countries with more resources.  The reason behind this is that the government often becomes corrupt and mismanages the resources.  Additionally, price volatility comes into play.  Natural resources, particularly petrolum, are always in price flux.  When countries base their revenue models on these resources, they tend to collapse, as Russian oil prices are doing now.

What was shown in Blood Diamond is the mismanagement by the government, but not the price instability.  The reason that diamonds always cost so much is, that, as DiCaprio’s character explained, the jewlery houses hoard them to artificially inflate demand in a classic case of a centrally-planned industry economy.  The reality is that there are more diamonds in the world than stars in the sky.  This was known as early as the 1980s, when Epstien wrote a huge article about it in The Atlantic.

“The creation of the idea that diamonds are rare and valuable, and are essential signs of  esteem is a relatively recent development in the history of the diamond trade.”

De Beers proved to be the most successful cartel arrangement in the annals of modern commerce. While other  commodities, such as gold, silver, copper, rubber, and grains, fluctuated wildly in response to economic  conditions, diamonds have continued, with few exceptions, to advance upward in price every year since the  Depression. Indeed, the cartel seemed so superbly in control of prices — and unassailable — that, in the late  1970s, even speculators began buying diamonds as a guard against the vagaries of inflation and recession. “

As a result of the negative press the movie has gotten and the movement of conscious consumers towards other diamonds options, such as not diamonds, diamond demand is finally starting to come down.

“This is being supported by diamond jewellery sales – particularly in the US which accounts for half the world’s diamond jewellery sales – but understandably, there is some nervousness about the key buying period coming up between Thanksgiving and Christmas,” he said. “However, there will be some gradual increases in supply over the next four years. This may see some price decline from next year ranging from 10% to 20% in 2009 as production levels rise and market demand remains low around current growth rates compared to 8.5% in recent years.” About $76 billion worth of diamonds are sold at the retail level each year.

Seventy-six billion dollars worth of diamonds.  That’s as much as 45% of Obama’s stimulus package.  How much of those diamonds are purchased conflict-related?  The Kimberly process, a certification process put in place to guard against buying conflict diamonds.  But how effective is it?  Some jewllers claim that conflict diamonds only now number 1% of total cut diamond sales.  That’s only $760 million dollars a year.   It is working to some extent, though:

Rough diamonds worth $800,000 were reportedly seized by customs officials two weekends ago at JFK Airport, after the jewelers carrying the stones failed to produce the required documentation for the gems. Two U.S. jewelers, who arrived from Sierra Leone by way of London, were caught with 28 rough diamonds that weighed a total of 1,200 carats, according to a report by NBC New York. The diamonds were headed for Brentwood, New York, the report noted.

But really, after seeing the movie, I have to wonder how effective paperwork is in the Third World.  Agencies fail there all time where survival instincts kick in.  It’s one thing to be looking at a research paper in New York.  It’s another to be in the diamond mines in Africa when you have a family to feed and a gun to your head.  Us white people always think we can change the world.  We donate to Kiva, we aspire to belong to the World Bank, and we pass around e-mails that warn friends and family not to buy this or that.  But honestly, how much are we doing?

Case in point: Me.  I was always against conflict diamonds.  I was against diamonds, period, because I am a Liberated Woman who does Not Need a Man for Anything*.  Actually, I wanted a recycled 1920s diamond.  I honestly did not want anything that costs more than $500 because I lose jewelry like the Bubonic plague.  Case in point?  I’ve already lost two wedding rings: my mom’s (first grade show-and-tell), and my own (at the gym.)  I’ve also lost countless necklaces and bracelets.    So, needless to say, I was extremely nervous about having an engagement ring.  When the time came, though, I started wanting a diamond.  Because, obviously, everyone had one.  And oh wow I would look good.  Lucky for me, Mr. B is quite a progressive guy.  Not only did he get me a conflict-free certified diamond, but it was also processed in Israel.  It makes it that much more meaningful for me every time I look at it that Moshe or Ze’ev  processed it in T”A just for me.

Back to the point.  We all say we don’t like conflict diamonds on principle.  But really, it’s impossible to implement, and until American women (myself included) stop being brainwashed by advertising.  And that’s really easy to say, too.  Because we all think we won’t be, and then we are.  So, really, I guess the first baby step is awareness.  Stop buying into Tiffany’s.  And if you have to have diamonds?  Buy Canadian.   Because until demand falls, it’ll all just be a huge game of numbers.

*except opening pickle jars

Tagged as: development, economics, identity, international