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".