James Bond! Marilyn Monroe!Leonardo DiCaprio! Love! International Intrigue!What do they all have in common?

They are all part of the story of the most successful cartel in history.What’s a cartel?“A cartel is a collection of

businesses or countries that act together as a single producer and agree to influence prices for certain goods and services by controlling production and marketing.” INVESTOPEDIA

What makes this cartel so successful?It doesn’t just control production

and distribution.It also created the very demand

for its product.What product? It’s not a food.

Or a necessity. Or an addictive drug.

DeBeersThe world’s most successful—and

longest-lasting—cartel.And the commodity it controls:

diamonds.

A Cartel is ForeverDeBeers and the Diamond InventionSupplement to Chapter 14:Export & Import Practices

Diamonds are not:Particularly rare (rubies are far

rarer)Especially valuable (don’t try

selling yours)An ancient wedding tradition

(in America, the engagement ring only caught on in the late 1940’s)

In 2011, Americans spent over $7 billion on diamond engagement rings.

DeBeers: A Cartel is Forever

 DeBeers was formed as a group of producers whose goal it was to fix prices, control supply and limit competition, and this is exactly what De Beers has done historically with the trade of diamonds.

The name "De Beers" originated with two Afrikaaner farmers, Diederik Arnoldus De Beers and Johannes Nicholas de Beers. The De Beers brothers discovered diamonds on their South African farm and unable to deal with the stress of protecting the farm from the influx of diamond seekers, they sold the land and the mines. The land was home to two large mines were involved in the transaction: Premier and Kimberly.

De Beers Consolidated Mines Limited was thus formed in 1888. As a group, they owned all of Premier, most of Kimberly, and several other mines. The company was granted an official listing on the Johannesburg Stock Exchange in August 1893 (DeBeers.com).

Over a decade later, the De Beers cartel formed, made up of the newly named Barnato Brothers, Anglo American, and JCI. Anglo American and the Barnato Brothers owned most of the stock, about 90% combined. Through Anglo American, DeBeers began to acquire a large number of other mines, including the Consolidated Diamond Mines. Some of the largest during their time, acquiring the CDM was a huge coup for the De Beers Group.

Chapter 8

A Cartel is Forever

“The diamond invention—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. Until the late nineteenth century, diamonds were found only in a few riverbeds in India and in the jungles of Brazil, and the entire world production of gem diamonds amounted to a few pounds a year. In 1870, however, huge diamond mines were discovered near the Orange River, in South Africa, where diamonds were soon being scooped out by the ton.

“Suddenly, the market was deluged with diamonds. The British financiers who had organized the South African mines quickly realized that their investment was endangered; diamonds had little intrinsic value—and their price depended almost entirely on their scarcity. The financiers feared that when new mines were developed in South Africa, diamonds would become at best only semiprecious.

“As De Beers took control of all aspects of the world diamond trade, it assumed many forms. In London, it operated under the innocuous name of the Diamond Trading Company. In Israel, it was known as "The Syndicate." In Europe, it was called the "C.S.O." -- initials referring to the Central Selling Organization, which was an arm of the Diamond Trading Company. And in black Africa, it disguised its South African origins under subsidiaries with names like Diamond Development Corporation and Mining Services, Inc. At its height -- for most of this century -- it not only either directly owned or controlled all the diamond mines in southern Africa but also owned diamond trading companies in England, Portugal, Israel, Belgium, Holland, and Switzerland.”

Edward Jay Epstein, THE ATLANTIC

A Cartel is Forever 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.

The diamond invention is far more than a monopoly for fixing diamond prices; it is a mechanism for converting tiny crystals of carbon into universally recognized tokens of wealth, power, and romance. To achieve this goal, De Beers had to control demand as well as supply. Both women and men had to be made to perceive diamonds not as marketable precious stones but as an inseparable part of courtship and married life. To stabilize the market, De Beers had to endow these stones with a sentiment that would inhibit the public from ever reselling them. The illusion had to be created that diamonds were forever -- "forever" in the sense that they should never be resold.

Edward Jay Epstein, THE ATLANTIC

A Cartel is Forever .NW. Ayer & Son, a leading advertising agency in the United States, and the young

Oppenheimer,encouraged by his bankers, sought to reverse the declining price of diamonds with a well-funded advertising campaign. Europeans were not yet taken with the idea of purchasing engagement rings featuring diamonds as the gemstone of choice. Moreover, impending war in Europe forced Oppenheimer and his bankers to promote their interests in their biggest market - the United States. At the time of the meeting with Ayer, three quarters of the cartel's diamonds were being sold there. But difficulties beleaguered this market too; diamonds were of an inferior quality to those sold in Europe, and prices were low - an average of $80 per stone.

Oppenheimer told Ayer that De Beers had not approached any other agencies and that if Ayer's plan was accepted, it would become the exclusive agency for promoting De Beers' interests in the United States. This shrewd tactic proved to be a strong motivating factor for N.W. Ayer, and after extensive research, the agency proposed a campaign to "channel American spending toward larger and more expensive diamonds".

To achieve this goal, Ayer further recommended strengthening the association of diamonds with romance. Young men, who purchased 90% of engagement rings, would be bombarded with the idea that diamonds were the gift of love. The first campaign aimed at men was launched in 1939 emphasizing the male's business savvy. Women, too, would be targeted with the idea that no courtship would be complete without a sparkling diamond. Famous houses of worship were featured in follow up advertisements, establishing a link between diamonds and the sacred tradition of a religious wedding

The woman behind the marketing. Frances Gerety wrote "A Diamond Is Forever" for an

advertising campaign for De Beers in 1947, and wrote all of the company's ads for 25 years.

A woman’s jobWhen Ms. Gerety applied to work at the Philadelphia

advertising agency N.W. Ayer & Son in 1943, she was told that her timing was perfect: the agency had just lost a female copywriter. At the time, women were usually hired to write for women’s products only. Her main account would be De Beers. For the next 25 years, she wrote all of the company’s ads.

Her counterpart in publicity was Dorothy Dignam, a plucky brunette who kept a list of questions male co-workers asked her in the drawer beneath her typewriter; things she was meant to know as a woman, like, “Could a winter hat have a bird’s nest on it? Is Macy’s singular or plural? What do you give a girl graduating from a convent? Is this thing an inverted pleat?”

Birth of a notionNeither Ms. Gerety nor Ms. Dignam ever

married. But their greatest professional achievement arguably was helping to create a sense of emotional attachment to the diamond engagement ring.

It’s hard to imagine a time when diamond engagement rings were not the norm; today, even after a decade and a half of bad press about blood diamonds and working conditions in the mines, among other concerns, 75 percent of brides in the United States wear one, according to Kenneth Gassman, president of the Jewelry Industry Research Institute

Turning a luxury into a necessityBut in 1938, when a De Beers representative

wrote to N. W. Ayer to inquire whether “the use of propaganda in various forms” might boost the sale of diamonds in the United States, their popularity had been on a downward trend, in part because of the Depression.

N.W. Ayer conducted extensive surveys of consumer attitudes and found that most Americans thought diamonds were a luxury for the ultra-wealthy. Women wanted their men to spend money on “a washing machine, or a new car, anything but an engagement ring,” Ms. Gerety said in 1988. “It was considered just absolutely money down the drain.”

1955: “Most Successful Marketing Campaign of the 20th Century”

Chapter 8

N. W. Ayer proposed to apply to the diamond market Thorstein Veblen's idea, stated in The Theory of the Leisure Class, that Americans were motivated in their purchases not by utility but by "conspicuous consumption." "The substantial diamond gift can be made a more widely sought symbol of personal and family success -- an expression of socio-economic achievement," N. W. Ayer said in a report. To exploit this desire for conspicuous display, the agency specifically recommended, "Promote the diamond as one material object which can reflect, in a very personal way, a man's ... success in life."

The DeBeers Dilemma The agency set an ambitious goal: “to create a situation

where almost every person pledging marriage feels compelled to acquire a diamond engagement ring.”

Because De Beers controlled the world supply of rough diamonds, antitrust laws prohibited the company from doing business in the United States. The ads could not promote De Beers, or even show pictures of jewelry, so the agency commissioned bold paintings by artists like André Derain and purchased pre-existing works by Dalí and Picasso.

“Sentiment is essential to your advertising, as it is to your product,” it counseled De Beers in a memo, “for the emotional connotation of the diamond is the one competitive advantage which no other product can claim or dispute.”

1952: “Most successful marketing campaign of the 20th Century”

Chapter 8

1955: “Most Successful Marketing Campaign of the 20th Century”

Chapter 8

“The big ones sell the little ones.”Meanwhile, Ms. Dignam was busy making sure average consumers saw diamonds everywhere. Her theory was that “the big ones sell the little ones.”

Capitalizing on the country’s newest obsession, she wrote a monthly letter to newspapers describing the diamond jewelry worn by Hollywood actresses. She sometimes appeared as a guest columnist on the women’s pages, writing under the name Diamond Dot Dignam. (“Jimmy Durante’s valentine to his dream girl, Margie Little, was an eye-opening diamond ring. Rosalind Russell wears only two costumes in ‘The Guilt of Janet Ames,’ but one of them consists of three and three quarters pounds of diamonds and only two and a half pounds of foaming tulle and net and sequins.”)

In the 1950s, N. W. Ayer started lending jewels to socialites and starlets for the Academy Awards and the Kentucky Derby.

1953: “Most successful marketing campaign of the 20th Century”

Chapter 8

1971: “Most Successful Marketing Campaign of the 20th Century”

After just two years, the sale of diamonds in the United States increased by 55 percent. In its 1951 annual report, N. W. Ayer noted that, “for a number of years we have found evidence that the diamond engagement ring tradition is consistently growing stronger. Jewelers now tell us ‘a girl is not engaged unless she has a diamond engagement ring.’ ”

Toward the end of the 1950s, N. W. Ayer reported to De Beers that twenty years of advertisements and publicity had had a pronounced effect on the American psyche. "Since 1939 an entirely new generation of young people has grown to marriageable age," it said. "To this new generation a diamond ring is considered a necessity to engagements by virtually everyone." The message had been so successfully impressed on the minds of this generation that those who could not afford to buy a diamond at the time of their marriage would "defer the purchase" rather than forgo it.

Chapter 14 Supplement

4C’s & 2 month’s salaryThe company also succeeded in promulgating ideas

like the Four C’s, which arose from a surplus of very small stones. Buyers had been taught that bigger meant better, and had no interest. So N. W. Ayer added a box labeled “How to Buy a Diamond” to every ad, with the instructions: “Ask about color, clarity, and cutting — for these determine a diamond’s quality, contribute to its beauty and value. Choose a fine stone, and you’ll always be proud of it, no matter what its size.” (The final “c” stood for carats.)

In the 1980s, the agency introduced a series of ads setting a new arbitrary but authoritative-seeming benchmark: “Isn’t two months’ salary a small price to pay for something that lasts forever?”

Conquering Japan Until the mid-1960s, Japanese parents arranged marriages for their children through

trusted intermediaries.. There was no tradition of romance, courtship, seduction, or prenuptial love in Japan; and none that required the gift of a diamond engagement ring. Even the fact that millions of American soldiers had been assigned to military duty in Japan for a decade had not created any substantial Japanese interest in giving diamonds as a token of love.

J. Walter Thompson began its campaign by suggesting that diamonds were a visible sign of modern Western values. It created a series of color advertisements in Japanese magazines showing beautiful women displaying their diamond rings. All the women had Western facial features and wore European clothes. Moreover, the women in most of the advertisements were involved in some activity -- such as bicycling, camping, yachting, ocean swimming, or mountain climbing -- that defied Japanese traditions. In the background, there usually stood a Japanese man, also attired in fashionable European clothes. In addition, almost all of the automobiles, sporting equipment, and other artifacts in the picture were conspicuous foreign imports. The message was clear: diamonds represent a sharp break with the Oriental past and a sign of entry into modern life.

Chapter 14 Supplement

Conquering Japan .The campaign was remarkably successful. Until1959, the importation of diamonds had

not even been permitted by the postwar Japanese government. When the campaign began, in 1967, not quite 5 percent of engaged Japanese women received a diamond engagement ring. By 1972, the proportion had risen to 27 percent.

Japan became the second largest diamond market outside the US. By 1981, over 60 percent of Japanese brides wore diamond engagement rings. In a matter of decades, the 1,500 year-old traditions of Japan had been changed.

Today, China is a growing market, with 80% of brides choosing diamonds in some urban markets.

Chapter 8

Small Diamonds, Big Challenge

Diamonds flooding in from Russia were smaller and not always as “perfect” as African stones. The answer: market rings with smaller diamonds

Chapter 8

Backlash: Conflict Diamonds

Chapter 8

Backlash: Conflict Diamonds

Chapter 8

Canadian Diamonds Why a Canadian diamond?

Canadian diamonds are desirable because of their great attributes.  They come from that exotic and beautiful Canadian north.  Canadian diamonds are being mined in accordance with the principles of sustainable development   They are mined to the highest environmental standards in the world; they have provided social benefits to the northern communities and have brought about important economic prosperity to their region (Check the mines websites).  Canadian diamonds meet the requirements of the Kimberley Process and many of them can be traced back to the mine of origin. And, for

Canadians, they support a new Canadian industry.

Chapter 8

DeBeers’ Third Century “China is the diamond-jewellery market of the future,” says DTC MD-designate Varda

Shine. She notes that the jewellery market in China sparkles with potential. As an example, Shine explains that, in Shanghai, eight out of ten brides receive a diamond as a gift.

A short-term obstacle to the company’s marketing drive, however, is in the form of an ancient Chinese superstition that stems from a quirk in the Chinese lunar calendar.

Since 2005 did not contain the day that traditionally marks the start of spring, called li chun, it is considered a ‘widow’s year’ and an unlucky time to get married.

To sidestep this obstacle, Shine notes that the DTC launched a new campaign to target the female market outside the context of marriage.

Called ‘Eternal Girl’ the campaign aims to appeal to the ‘girl within every woman’, says Shine. The foundation of the DTC marketing drive in Japan, she explains, has been built more on the glamour value of diamonds for the individual, as opposed to the importance of diamonds in a relationship.

“For the Japanese consumer, an article is attractive if it is attractive to everyone else,”

says Shine.

Chapter 8

CreditsEdward Jay Epstein, THE

ATLANTIC, “Have You Ever Tried to Sell a Diamond?” Feb 1, 1982.

J. Courtney Sullivan, NEW YORK TIMES, “How Diamonds Became Forever,” May 8, 2013