In fact, during Ernest Oppenheimer’s directorship (ending with his death in 1957), De Beers never deliberately discovered a diamond deposit. Quite simply, there was no point in investing in prospecting since the company was not interested in identifying new sources of stones, only to be obliged to absorb the output from any new deposits in order to maintain the “scarcity” that it had so carefully engineered. As Rhodes had once presciently declared: “Our only risk is the sudden discovery of new mines, which human nature will work recklessly to the detriment of us all.”[62]Of course, for Rhodes, the terms “our” and “us” referred to De Beers and, to a lesser extent, other industry entities; conversely, for the diamond-buying public, the excavation of new deposits wouldn’t be detrimental at all—quite the opposite, in fact. Eventually, major, transformative discoveries were made, namely in Russia, Australia, and Canada. Although De Beers had remarkably maintained its near monopoly for decades, over time a growing number of competitors, from Africa and beyond, opted not to join the cartel. Eventually, their disinclination prompted De Beers to abandon the long-standing business model that had served the company so very well.
Threats from Within: Early Domestic Dangers
Perhaps no threat was more serious to the company’s survival in its early years of operations than the siege of Kimberley, during the opening rounds of the South African War (1899–1902). At the onset of the Boers’ four-month onslaught, Rhodes boldly moved into the city in order to pressure the British to focus on breaking the blockade, rather than on more strategic military objectives. Beyond simply requesting help, though, the assertive leader of De Beers took an active role in the struggle by placing the company’s resources at the disposal of the defenders. He also ordered the manufacture of shells, an armored train, and a gun, fittingly named “Long Cecil,” in De Beers’s workshops.[63]
In 1902, just weeks prior to the end of the conflict, the talismanic founder of De Beers died, leaving behind an enterprise that controlled a remarkable 90 percent of the world’s diamond production. Yet a challenge that materialized that same year would shake the very foundations of Rhodes’s company. Henry Ward, the owner of Cullinan (or Premier) Mine, which had just come on line in South Africa, refused to join the De Beers cartel, opting instead to sell to Bernard and Ernest Oppenheimer—a pair of independent diamond dealers whose names in the industry would not soon be forgotten. Although an assortment of smaller mines, including alluvial operations both within and beyond South Africa, continued to operate outside the cartel, a competitor of this magnitude hadn’t existed since Barney Barnato. Cullinan’s production soon matched De Beers’s entire output, while also generating in 1905, at 3,106 carats, the largest gem-quality stone ever discovered: the Cullinan Diamond. Despite protracted negotiations over Cullinan’s output, only during the First World War was De Beers finally able to assume control of the mine.
Rhodes’s Dream Dashed: Regional Trouble, a Costly Decision, and Eventual Absorption
Even as the Cullinan crisis was unfolding, De Beers was busy contending with an even more serious development—one which eventually led to its absorption by Anglo American. This challenge, unlike the one from Cullinan, came from beyond South Africa’s borders, in the adjacent German colony of South West Africa (Namibia). In 1908, promising alluvial deposits had been discovered in that territory. However, having just endured a global depression, De Beers was loath to invest in the companies that had been formed to mine these new discoveries. Although De Beers had made remarkably few mistakes during its ascendancy, this decision was particularly costly, as these deposits proved to be extremely bountiful. With De Beers taking a pass, it was the enterprise’s eventual acquirer, Anglo American, that would negotiate the purchase of these lucrative mines. Under the direction of its founder, Ernest Oppenheimer, who had transitioned from independent dealer to mining executive, Anglo also succeeded in securing exclusive contracts in the 1920s to purchase the output from mining operations elsewhere on the continent. These locations included the Belgian Congo (a key source for industrial-grade diamonds) and Angola, as well as recently opened mines within South Africa (at Lichtenberg and Namaqualand). In turn, this series of procurement arrangements further dented De Beers’s already teetering monopoly. Collectively, these tactical moves paved the way for Anglo to become the majority stakeholder in De Beers and to build a new, more geographically expansive monopoly on the foundations of the original one, while retaining the De Beers name. Although this titular retention was testament to Rhodes’s earlier, extraordinary success, the De Beers’s founder was surely writhing in his final resting place, knowing that the corporate giant that he had conceived and reared from its infancy no longer called the shots in the global diamond industry.
New Initiatives and New Challenges: The Ernest Oppenheimer Era
Rarely idle, Ernest Oppenheimer understood well that maintaining a monopoly requires relentless effort, adaptation, and ingenuity. In 1930, De Beers launched a series of revolutionary marketing initiatives under the umbrella of the Central Selling Organization (CSO). This entity replaced the London Syndicate of merchants and buyers, to which De Beers had been exclusively selling since 1889. Under the new scheme, all rough diamonds were funneled through a single channel that extended from the initial purchase of newly unearthed stones to the sale of these gems to dealers at “sights.” It also provided minimum sales and price guarantees to the array of companies involved. Notwithstanding this extremely successful, vertical initiative, the Great Depression rendered the 1930s an extremely challenging decade for the enterprise. De Beers cut production and closed all of its premier mines in South Africa and Namibia, while it was forced to stockpile the output it was contractually obligated to purchase from operations elsewhere. During this trying period, only Anglo American’s financial might and the novel demand for industrial diamonds, which were vital to the construction of the mounting global war machines, kept De Beers afloat.
Emerging from the end of the Depression and the ensuing Second World War, De Beers was determined to reenergize sales. To this end, its ongoing invention of the rarity and value of diamonds was complemented by a brilliant marketing campaign that convinced consumers worldwide that these stones were essential symbols of esteem and success. Indeed, the popular desire to own a diamond can roughly be traced back to a slogan that most readers will instantly recognize: “A Diamond Is Forever.” What these four seemingly simple words convey(ed) is actually a highly loaded message, while their remarkable endurance isn’t merely a case of good fortune. In practice, the durable slogan is intended to render diamonds fundamental to any formal expressions of romance and, ultimately, love; to suggest that diamonds never lose their value; and to convince purchasers that the stones should never be resold (else the price would plummet, though De Beers opted not to divulge this important detail). Men had to be convinced diamonds were the only acceptable expression of their love, women needed to insist upon them, even if only passively, and once purchased, these stones were to be retained . . . forever. In 1947, the New York advertising agency N. W. Ayer & Son coined the slogan for De Beers, which had earlier inquired of Ayer if “the use of propaganda” might help boost American sales. The diamond enterprise quickly adopted this bit of “propaganda” as its official motto. Its creator was Frances Gerety, a copywriter, who struggled under the glass ceiling and would only decades later receive the public credit she was due. By 1979, this extraordinarily effective marketing had helped the industry leader expand its US sales to more than $2.1 billion, compared with only $23 million in 1939—an increase of nearly a hundredfold. Thus it’s small wonder that in 2000, Advertising Age magazine named “A Diamond Is Forever” the best advertising slogan of the twentieth century.
Perhaps even more remarkable than De Beers’s success in cultivating demand in the American market was its success in postwar Japan. No tradition of purchasing engagement rings existed in the Asian nation, unlike in the United States. In fact, Japanese conjugal customs featured scant romanc
e, courtship, or seduction, as most marriages were arranged and were consummated simply by sharing a drink of rice wine from the same bowl. To overcome these formidable obstacles, the advertising agency that De Beers hired to tap this market, J. Walter Thompson, launched a campaign in 1967 that strongly associated diamonds with modern Western values, fashions, and customs. In short, these stones were to symbolize an important transition into modern life. And, based on sales, it seems that many Japanese were eager to make this transition. Within five years, over 25 percent of all women received a diamond engagement ring, up from less than 5 percent prior to the launch of the campaign. By 1978, half of all married Japanese women wore a diamond. In little more than a decade, diamonds had become an integral component of the engagement process, and Japan had consequently become the second largest market (behind only the United States) for diamond engagement rings.[64]Not only had De Beers’s marketing been able to generate consumer demand where none had previously existed, it had also, in the process, transformed long-standing, deeply embedded cultural traditions. Seemingly, only a diamond is truly forever.
In conjunction with De Beers’s global marketing initiatives, Oppenheimer skillfully positioned the company to bring new sources of rough diamonds, including the Gold Coast (Ghana) and Sierra Leone, into the single channel. The discovery of significant deposits in the British colony of Tanganyika (Tanzania), however, proved to be an entirely different matter. The massive Mwadui kimberlite pipe was first discovered by Dr. John Williamson, a Canadian geologist, in March 1940, and by 1942 he had incorporated Williamson Diamonds Ltd. Sensing the enormity of this discovery, De Beers attempted to bring this new stream into the CSO, while also trying to buy the mine outright. It’s important to note that, for De Beers, the maintenance of its monopoly was far more important than the money it might have to outlay to purchase these deposits. Regardless, both Williamson and the colonial authorities, eager to maintain control of these resources, were not to be pressured, or at least not immediately. Only in 1947 did these parties agree to enter the De Beers fold, thereby ensuring that this output was sold exclusively through the CSO, at agreed-upon prices.
The contentious nature of this relationship did not, however, simply end with the adoption of this agreement. Indeed, although the Tanganyikan mines had produced 195,000 carats in 1949, by 1951 none of this output was being sold. Following a price dispute with De Beers, Williamson had, instead, opted to stockpile the diamonds. Although the discontented owner was not contractually permitted to sell his output to any other prospective buyer(s), he maintained that he was, in fact, not obligated to sell any stones at all. The brash Canadian was clearly not reading from the well-established industry script. Even more troubling for De Beers were Williamson’s other initiatives, which included open flirtation with Jolis and Harry Winston, American diamond dealers who were attempting to gain control of this production; threats to release his formidable stockpile of diamonds out onto the market, which would have lowered the global per-carat price and which did lower De Beers’s share price; and, finally, the fact that the contract with the Tanganyikan operation was set to expire in 1951. However, the governments in Dar es Salaam and London, both of whom were feeling the pain of lost revenues, finally intervened. These administrations pressured the parties to sign a new agreement in 1952, and another in 1956, each of which was increasingly favorable for Williamson. Only in 1958, with the death of the “rogue” Canadian, did De Beers finally purchase the mine outright, before ultimately selling an equal stake in it to the colonial state. Despite the considerable delay, frustration, and lost revenue that the company had endured, De Beers was ultimately successful in ensuring that this production stayed within the cartel’s single channel.
Unlikely Partners: The Politics of Monopoly
Even before De Beers fully resolved the predicament in Tanganyika, the discovery of diamonds in the Soviet Union in 1954 had delivered yet another major challenge. Many foreign observers, including the Soviets, considered De Beers, which was derisively referred to as “South Africa, Inc.,” inseparable from the country’s racist regime. Although Ernest Oppenheimer’s son, and corporate successor, Harry, had been a consistent voice against apartheid, the company was largely unable to dispel these external notions. Given the Soviet Union’s exaltation of workers’ rights and its courting of nationalist movements throughout Africa, it seemed an unlikely partner for De Beers. Yet as with other finds, it was imperative for De Beers to bring the USSR’s output into the CSO. In fact, in this case it was vital for the company, as the Siberian stones were high-grade, even if extremely small in size, and instantly constituted up to 20 percent of the world’s gem-quality diamonds. For their part, the Soviets understood that an agreement would ultimately be in their best interests, as well. Shielded by the opacity that the diamond industry has traditionally offered its participants, the two parties ultimately struck a deal, in secret. And as testament to De Beers’s marketing genius and manipulativeness, the company successfully devised the “eternity ring,” which featured up to twenty-five of these tiny Russian stones. Meanwhile, for Moscow, the initial contract provided an estimated $25 million per year to route its diamonds through the cartel, though the agreement was periodically revised in the Soviets’ favor. Once again, a producer concluded that as disagreeable as the single channel and its overseer might be, the massive, guaranteed revenues offered were simply too good to forgo. As has happened so often throughout history, even the most ideologically stringent are willing to disregard their own rhetoric when the price is right.
In rare cases, De Beers’s financial propositions were actually rebuffed. In the heady, early days of postcolonial Africa, decisions to shun the diamond behemoth were made largely on ideological grounds. For some African leaders, as long as the apartheid regime remained in place, doing business with “South Africa, Inc.” was simply unpalatable. Yet, in every case (with the exception of Ghana), De Beers was able to establish and maintain, often covertly, relationships with the governments of newly independent, diamond-producing states. By creating innocuously named subsidiary companies, such as the “Diamond Development Corporation” and “Mining and Technical Services Ltd.,” registered in places like Switzerland, Luxembourg, Liechtenstein, and the Bahamas, De Beers engineered the cover that these African governments required in order to maintain their ties with the industry giant.[65]Even a deal with the devil can be arranged, so long as no one knows about it.
Conversely, when greed, rather than ideology, drove producers’ uncooperativeness, De Beers wasted little time with covert overtures. This scenario played out in Zaire (the DRC) during the dictatorial reign of the ruthless and rapacious Mobutu Sese Seko, who had seized power shortly after the country’s independence from Belgium in 1960. De Beers had been active in the Congo since the 1920s, working closely with the two colonial mining giants, Forminière and the Société Minière de Bakwanga (MIBA), and had long enjoyed a virtual monopoly on Congolese output. However, starting in the 1970s, Mobutu strove to gain control over the diamond industry in the same manner that he had appropriated for personal enrichment the nation’s copper and cobalt industries. In 1973, he nationalized MIBA, including the portion that De Beers owned. And in 1981 Mobutu ended De Beers’s purchasing monopoly of MIBA’s production.
Damage to the cartel remained only hypothetical during this eight-year stretch, as De Beers continued to purchase all of MIBA’s output (which had shrunk from 13.4 million carats in 1973 to only 8.7 million in 1979). However, following Mobutu’s more aggressive move in 1981, De Beers hit back, ferociously. The company instantly flooded the market with massive quantities of industrial-grade diamonds similar to the ones produced in the Congo, immediately driving down the price of these stones by roughly 40 percent. The enterprise also established buying houses in the neighboring cities of Brazzaville (in the Republic of the Congo) and Bujumbura (in Burundi), traditional destinations for gem-quality stones smuggled out of the Congo. The industry giant was on a retaliatory rampage.
Beaten and humbled, Mobutu reengaged with De Beers, though on much less favorable terms, with Oppenheimer suggesting that the Zairian case serve as an example to others who might be contemplating similar moves. No one immediately volunteered.
If Mobutu’s actions had caused some level of concern within De Beers, arguably the greatest threat that the company faced during its durable reign was much more local in nature. With Nelson Mandela’s release from prison in 1990 and the first open elections set for 1994 collectively signaling the end of the apartheid era, corporations across South Africa faced great uncertainty. Having endured decades of violence, Mandela’s African National Congress (ANC) party had accused the nation’s mining companies of “representing tremendous wealth in the midst of unspeakable poverty” and insisted that “the nationalization of the mines and banks . . . is the policy of the ANC and a change or modification of our views . . . is inconceivable.”[66]
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