Learning Ethics from a Carbon Isotope

De Beers used to be a monopoly. Through the formation of cartels it successfully established control both on the demand (Diamond Syndicate) and the supply side (De Beers). Before its tussles with the U.S. Anti-Trust laws, it effectively controlled 80% of the diamond industry!! Nothing so shocking here. What I was fascinated with, was a statement from my Strategy professor that De Beers has successfully pulled the biggest marketing coup in human history.

Which it really is. Think about it. How do you attribute a certain value to diamonds? Typically, any product derives its value from the extent to which it fulfills a particular need. While industrial diamonds won't give you a hard time in estimation of value as it can be derived from some operational benefit it provides, e.g. fine cutting and trimming; but how does a consumer derive value through the personal possession of a diamond? Is diamond needed by people in the first place? Was it ever needed? I find none. Unlike diamonds, gold picked up in importance quite early (owing to better availability) and time only impressed it harder on our zeitgeist; our part of the world promoted it to the status of a ritualistic necessity while others gradually brought it into the economic system thereby ensuring a perpetuity for its significance. Diamond, however, got left behind. How, then, did diamond become so valuable? One factor is its rarity which provides it its ornamental value (we shall ignore the industrial usage of diamonds). This value was justified before the 19th century's Industrial Revolution as its extraction was difficult. But the technological advancements begotten by the revolution made their extraction much easier. In a typical scenario, such a boom is followed by mushrooming of small entrepreneurs sprawled over the terrain, each fighting his own way to prosperity and this whole process ending with a reasonably sized miners controlling the resource supply in the region at the least. However, diamonds were steered into a detour by an Englishman named Cecil Rhodes.

An critique of the De Beers and commercial diamond industry

Cecil Rhodes knew that the then emerging diamond supply explosion in South Africa would be corrosive to the mineral. He therefore successfully attempted a consolidation and cartelization of the demand and supply sides of diamonds through the formation of De Beers and Diamond Syndicate. This control over virtually the complete market for a commodity, made it a monopoly. The artificial scarcity of diamonds coupled with the much famed marketing, converted what is technically a carbon isotope into an eternal symbol of love, enabling it to reap higher revenues. The point here is, was De Beers justified in creating a market out of thin air? Diamonds don't have a necessity in our lives, yet we spend extravagantly on them. Was it ethical of De Beers to lie to its consumers and generate wealth?

Rights of Man

If my first contention is clear by now, I would argue that from a purely philosophical perspective, it is unethical for any corporate body to use its consumers as means to meet its ends of fattening its bottom line and increasing shareholder value. Corporations carry a fiduciary responsibility towards its stakeholders (consumers always being predominant) of helping them meet their ends. It is under this implied covenant ("social contract", if I may call it) that law provides a corporation its legitimacy. Any organization designed as an end in itself has no claim over legal protection and is liable for the violation of the rights of man, derived from Kantian ethics. Therefore, such autotelic arrangements as De Beers have no ethical claim over their existence. De Beers has created an illusion among its consumers that diamonds are rare, effectively a misrepresentation about its product's value. 

Diamond is a natural resource. De Beers, through establishing a tight grip over its production and supply chain, effectively secured a patent over diamonds (as roughly any diamond being traded anywhere was De Beers' which brought all the "royalties" to it alone); I have argued why it is unethical to patent a natural resource in a previous post here. (http://here-i-lie.blogspot.in/2013/04/philosophical-musings-and-ruminations_30.html)

Are diamonds a necessity?

All said and done, De Beers can still be vindicated from such allegations if diamonds are shown to actually be a necessity and not a luxury i.e. it has a "reasonable" need in human lives. I mention reasonability owing to the fact that some of our needs are not actually needs, but wants; e.g. a drug addict would want his/her narcotic so bad that he/she is led into believing that it is a need rather. Minding this caveat, it is prima facie evident that diamonds don't have a necessity in our lives except for industrial purposes. Although, some might argue that diamonds are on the path which gold took centuries ago and that diamonds are gradually acquiring the status of a necessity; e.g. since diamonds have been closely associated to relationships, diamonds have become, if not pure but symbolic necessity, that it acts like a totem for your love, it is also eternal and supposedly induces this eternity in your love. Could it not be done with another gemstone, say, a ruby? Can't its red colour signify the flame of your passion? Also, relative to human longevity, a ruby is as eternal as a diamond. But the other three precious stones viz. emerald, sapphire and ruby failed to attract the human fascination and therefore were sent to the nosebleed seats. My point being, that maybe, just maybe, humanity needed one precious thing in its social evolution, that fortune went to gold; we don't need another stone to waste our resources on. Diamonds, therefore, are a luxury.

Although it can be argued that over the course of time, luxuries gradually become necessities. Imagine air travel!! Ceiling fans were found only in palaces once. New solutions to humanity's problems are often valued more than older solutions and their social status gradually subsides. A similar course could be envisaged to claim that diamonds too are on a course to becoming a necessity and will find a haven of needs in our minds someday to unload their actual value, if they carry any. To this, I would respond that other products derive value essentially because they address a particular human need. When a solution is introduced in the market, its discoverer/inventor is morally justified in reaping the fruits of his labour as a reward for his contribution to humanity's progress. Diamonds repeatedly fail this test. They never addressed any human issue in the first place!! A counter-argument can be put forward that the diamond industry supports millions of livelihoods and if the perceived value of diamonds is undermined, the livelihood of, say, diamond miners of Angola will be adversely affected. And what about those who already own diamonds? Regarding these issues, I don't have any concrete solutions to; for the marginal miners working for De Beers it can be insulated from damage by maintaining the same wage levels and  the current owners can maybe compensated for the decreased value in a phased and proportionate manner. These solutions would need money, which can be sourced by completely liquidating De Beers. The diamond industry needs a reset and this fantastical proposition is that reset.

Ferrari and a broken window

De Beers was never justified in creating this illusion of preciousness for diamonds and reaping profits out of it. By doing this, De Beers has constantly eaten into the consumers' disposable incomes and "earned" money for diminishing the consumer surplus; quite contradictory to its economic duty of augmenting the consumer surplus. One stock argument against this contention could be that many organizations earn their revenues solely from luxury products e.g. Ferrari; the argument here can be extended to all such organizations and the legitimacy of their returns stands to be questioned.

While it is true that many organizations levy premiums for their luxury products; what ethical validation does, say, Ferrari have that makes them charge inordinately for their automobiles when what its products essentially address is our need for transportation, just like another automobile. I contend that they are not violating general ethics through their actions. Because, Ferrari cars are nothing more than an option in the whole global automobile market. You, as a potential car owner, have a myriad of options to choose from. Ferrari never erects barriers to prevent you from exploring other cars. I can, as a thought experiment, evaluate Maruti 800 and a Ferrari, and make my choice independently. Therefore, it can be argued that firstly, unlike De Beers' diamonds, Ferrari's products fulfil a need and have a legitimate value. Secondly, Ferrari doesn't control the global output of cars; it can only influence the production of its plants not Rolls Royce's. In this respect, Ferrari, by acting in the economic environment is increasing competition which, ceteris paribus, rationalizes the industrial price point in due course of time. De Beers, by acting as a monopoly, has an absolute control on the diamond's price; with no market forces to decide the price in a fair manner, De Beers' position proves detrimental to the consumer surplus in the economy. These arguments impart legitimacy to both Ferrari's products and its existence, which De Beers clearly fails to have any claim on.

One last argument against the validity of commercial diamond industry is the "Broken Window Fallacy" conceived by the French economist, Frederic Bastiat. Broken Window Fallacy states that just because breaking a glass window pane would provide a commercial opportunity to a carpenter, it would be ultimately harmful to the society if the carpenter decides to go on breaking windows repeatedly to earn money by then repairing them; because every such activity (of destruction) has an opportunity cost (of the broken glass).  Such an activity would hinder the commercial activities of the carpenter's victims, the money that would go in reparation could have been used in something constructive, the carpenter could have helped a genuinely needy customer, the list can go on. There is a reason countries don't wage wars to boost their economic activity, it is because "broken glasses" are never beneficial for society.  With no need to address in the first place, diamonds consume huge amount of resources till they end up with a consumer. Aren't these resources an opportunity cost to other industries who could've used these resources for better purposes?Diamonds then are "broken glasses"; De Beers the unscrupulous "carpenter".