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Podcast Notes: Search Engine - Episode: Why are we still buying diamonds?
Episode Overview
- Host: PJ Vogt
- Editor: Sruthi Pinnamaneni
- Theme: Exploration of why diamonds are still highly valued despite their artificial production and perceived abundance.
Key Questions
- Why do we associate diamonds with romance and eternity?
- Are diamonds as rare as we think?
- What drives the high demand for diamonds in the market?
Key Concepts and Discussions
The Economic Mystery of Diamonds
- Understanding Demand vs. Supply:
- Traditional economic principles suggest prices are influenced by scarcity and demand.
- Diamonds, despite being artificially produced and more common than perceived, command high prices.
- Cultural Significance:
- Diamonds have been imbued with meanings of love and commitment through extensive marketing.
Historical Context of Diamonds
- Early Sources:
- Until the early 1800s, diamonds were primarily sourced from India.
- The late 19th century marked the discovery of diamonds in Brazil and South Africa, leading to a diamond rush.
- Cecil Rhodes:
- Key figure in the establishment of the modern diamond industry.
- Founded De Beers, monopolizing diamond supply and controlling prices.
De Beers’ Monopoly
- Control of Supply:
- At its peak, De Beers controlled about 90% of the diamond market.
- Utilized aggressive tactics to maintain monopoly, including buying up new mines and enforcing exclusive contracts.
- Price Stability:
- De Beers managed to keep diamond prices stable through strategic control of supply.
- The company was able to operate with little to no legal interference regarding antitrust regulations.
Marketing and Demand Creation
- Advertising Campaigns:
- De Beers collaborated with advertising firms to create compelling narratives around diamond purchases.
- “A Diamond is Forever” became a cultural slogan, promoting diamonds as essential symbols of love and marriage.
- Impact on Other Markets:
- De Beers’ marketing strategies expanded internationally, significantly increasing diamond sales in various cultures, including Japan.
Changes in the Market
- Emergence of Lab-Grown Diamonds:
- Recent advancements in technology allow for the production of diamonds in laboratories, challenging the traditional diamond market.
- Shift in Consumer Awareness:
- As ethical concerns rise regarding diamond sourcing, consumers are more aware of the implications of their purchases.
Contemporary Reflections
- Ethical Considerations:
- The history of diamonds raises questions about colonialism and the economic impacts on producing countries.
- The narrative reflects deeper issues of consumerism, exploitation, and the value placed on luxury goods.
- Personal Reflections:
- The discussion prompts listeners to consider their purchasing choices and the broader implications of buying diamonds.
Conclusion
- The episode delves into the complex interplay of economics, culture, and ethics surrounding diamond purchases. It challenges listeners to reassess how societal values shape consumer behavior and the historical context that continues to affect the diamond market today.
Listening Recommendation
- Podcast Platform: Available on Odyssey and other podcast platforms.
Feel free to dive into the complexities presented in this episode and reflect on what diamonds symbolize in contemporary society!
Written by AI. May contain mistakes. Listen to the episode to check what was said.
Transcript
Automatic transcript. May contain errors.0:00Welcome to Search Engine. I'm PJ Vogt. Each week, we try to answer a question we have about the world. No question too big, no question too small. If you're new to the show, you can check out PJVote.com, where you can find all past episodes, plus our newsletter, where I write little mini-essays about these stories. Last week, I wrote something about the podcast industry. PJVote.com, I feel like I'm selling a website, is also where you can message me if you'd like. I read everything, particularly people's questions. It's my favorite thing to get on my phone. Okay, newsletter plugged. This week, our show, our question, why are we still buying diamonds?
0:35That question after some ads.
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2:13So at Search Engine, we have a real fondness for questions that you feel like you know the answer to. But when pressed to explain them, you might begin to mumble and trail off. Here in the office a few months ago, Search Engine's Noah John started just talking a lot about diamonds. and we had one of those spooky moments where you realize there's a hole in your understanding of the world. There are these economic rules that we all accept, that there's such a thing as supply and demand, and that those forces help set the price of the things we buy. Gold is expensive because it's rare, even if it's not that useful.
2:48Water is cheap because it's plentiful, until you step into a concert festival where it's rare, and suddenly it's priced more like gold. We don't always like this, but we abide by it.
3:01Diamonds actually work differently. Because they're expensive, we assume that they're very rare, or I always did. But what's actually going on with them is much stranger than that. They're closer to an economic mystery than I'd realized. We started asking questions. Those questions led to other questions. And before we knew it, we'd arrived at a story. The story of why these particular gemstones are the ones we put all this meaning into. ideas about love, ideas about commitment, ideas about eternity. It's a story of a very devious international scheme constructed over several decades. It's also a story that will finally give you a good reason to look down on Rhodes Scholars.
3:40And we're going to share all of it with you today. Okay, so Noah found this book called Stateless Commerce about the diamond industry and mainly about how strange it is. And so we called the professor who wrote it, Barack Richman. Hi, Barack. Hey, how you doing? Hi, Barack Richman. Awesome. Thank you for talking to me about how diamonds work, why diamonds are valuable. I feel like half the time this show is pursuing things that like a seven-year-old would ask in the back of a minivan and then the driving section of the car would just go quiet with fear. Yeah. No, that's one of these things. We all know that diamonds are valuable, but none of us have thought the question why.
4:21Yeah, except for you. You have thought the question why a lot.
4:28I think the idea to start writing about it was planted in my brain when I was a first-year graduate student. And, you know, if you approach something as an economist, you're trying to figure out not just why things are weird, but why things make some kind of economic or even evolutionary sense. Things that seem weird but make their own kind of sense are obviously some of my favorite phenomena. human behavior that bucks our ideas about what's reasonable, but which we can understand if we pay enough attention. Like deciding that shiny rocks from the ground, shiny rocks which are actually not all that rare, and which can be replicated in labs, that those shiny rocks are worth two months of your salary, are worth walking into a store with a gun for, that we can look at those shiny rocks and feel envy, that does not inherently make sense to me.
5:22Young Barack Richmond, he liked wondering about this too. But unlike me, he's a trained economist, so he had a framework to apply to try to understand this unreasonable human behavior.
5:36Can you give me like a history of the diamond? At some point, human beings are like, these rocks are valuable. What is the history of us deciding that? Yeah, I mean, this is a history that goes back a long time. And I can't pretend to understand the source of human fascination with diamonds. In many ways, actually, I think it's a fascination that's led to more harm than good. But I can tell you that diamonds and gemstones have been a valuable currency, an asset, for at least two millennia. And diamonds were only found in the Indian subcontinent until about the year 1800. So for at least two millennia, you had diamonds mined in India, but distributed throughout the world through the usual merchant networks that distributed spices and other small but valuable goods.
6:41So for a breezy 2 ,000-ish years, India has their diamond monopoly, one country distributing diamonds to the rest of the world. But in the early 1700s, people start finding diamond mines elsewhere. In Brazil at first, but then in the late 1800s in South Africa. And it's this discovery in South Africa that kicks off the beginning of the modern diamond industry, with all of its strange, particular, often troubling dynamics. So there was effectively a huge diamond rush, much like the gold rush in California. There was a diamond rush when diamonds were found in Kimberley, South Africa. And it was a frenzy.
7:19Property rights were really ambiguous. Lots of people were basically just, you know, picking up a 10 by 10 lot and started digging downward. And then a person named Cecil Rhodes, as in the Rhodes Scholarship, came from England and purchased the vast majority of plots where individuals were mining diamonds.
7:48Cecil Rhodes, the great empire builder, was born 100 years ago. He lies buried in the Motopo hills in the Rhodesias, which are named after him. This is from a British newsreel from the 1940s about this man that Britain considered a hero, Cecil Rhodes. Britain loved Cecil Rhodes, but Cecil Rhodes loved Britain more. He actually said being born British meant beginning life having already won the lottery. And Cecil thought Britain was so great, he was going to export the British Empire to the southern part of Africa. This was the country which he brought under the British crown and formed into a British colony.
8:24Wild lands in the heart of Africa, which his vision pictured as the home of a thriving, prosperous people, but populated at that time only by wild beasts and roving tribes.
8:43Cecil was the son of a priest. As a young man, he was already plagued by a lot of health complications. His family sent him to what is today South Africa back when he was 17 because they thought the climate might help with his health. When he arrived, he found the diamond rush had begun. And for a young man like Cecil, there's opportunity there.
9:07There's this cliche that when there's a gold rush, the best idea isn't to go for the gold. It's to sell picks and shovels to the prospectors. And that's basically what Cecil did at first. He rented water pumps to diamond miners. But after he made some money and borrowed some more, he joined the diamond rush himself. Well, actually, what he did was more audacious than that. he started buying up entire diamond mines outright. Sissel Rhodes came in with some financing and just bought up all of the land where there was diamonds in Kimberley, in South Africa. And he established De Beers, and De Beers, almost from day one, became the leading global supplier of rough diamonds.
9:58Okay, so Cecil Rhodes is taking over a bunch of mines. How was he actually taking over the mines? And once he did, like, what were working conditions like for the people working in those mines? So when Cecil Rhodes went to South Africa, I imagine it to be a very sparse, very rugged terrain. And there was the discovery of diamonds in Kimberley, South Africa. And there were a whole bunch of speculators there. If you've ever seen the movie, There Will Be Blood, that's kind of the way I imagine this terrain. Lots of really rugged people doing really physically demanding and dangerous mining, all with their possessions in some kind of backpack.
10:46There's this 1940s documentary called Riches of the Veld. It has not aged all that well. It's very, like, hooray for British colonialism. But even in this documentary, they're showing exactly how brutal and demanding mining is. You see workers in the dark, cramped spaces of the diamond mines. It looks pretty miserable. Dark tunnels run in every direction through the gold-bearing rock of the Rand. It is hot and noisy, and the job of the native laborers is not an easy one. The narrator says that diamonds are the most important mineral in the Union of South Africa. That's what it was called back then.
11:21They're found in the dry part of the Veld, the hottest place in the country. At one time, the precious stones were found near the surface, but now they must be dug for far underground. Mining diamonds is not unlike mining gold. On an average, 5 ,000 tons of earth, called blue ground, must be dug to find even a handful of diamonds. And here's Cecil Rhodes. He is some kind of cross between this rugged individualist minor speculator and a British noble person who has come to extend the colonial empire. His only innovation, his only idea was, let me pay all these people to go away and I'll take over the whole space.
12:10And that's what he did in Kimberley. And as diamonds were found in other parts of Africa, in Botswana, in Namibia, in Sierra Leone, in Angola, De Beers expanded its presence in Africa, and it dominated most mining interests in Africa. And that's how it sustained its monopoly. Throughout Africa, by this point, there were a lot of diamond mines filled with a lot of diamonds. Too many diamonds, actually, if you're in the diamond selling business. Because had those diamonds just reached the open market in a normal way, presumably the influx of supply would have lowered the overall price. But because De Beers had a chokehold on the diamond supply, at one point controlling about 90 % of the market, the price of diamonds for the next century would function unlike the price of almost anything else.
13:04There's this great article from The Atlantic in the 1980s that calls De Beers, quote, the most successful cartel arrangement in the annals of modern commerce. The writer points out that while basically every other commodity, gold, silver, rubber, wheat, goes up and down over the years, the price of the diamond at the time hardly wavered. So how did they specifically protect their monopoly? Like, what did that look like when people would show up and be like, hey, I found a diamond mine. I'd like to get in on this. Yeah. So they did two things. And that's exactly what happened. I mean, you know, you can't own all the land where there's going to be diamonds.
13:40So someone else would find diamonds, usually in Africa, because at least for the 20th century, that's where most of the sites were. Someone would find a new source of diamonds, and De Beers would show up the next morning and they'd say, look, we're all better off if you come into our company, we can both charge monopoly prices or better yet, I'll just write you a check right now for the equivalent value at monopoly prices of whatever you have. What do you say? And if they say no, then De Beers comes with effectively a private army the next day. Really? Yeah. Just like the East India Company was both a company and also an arm of the crown, I think what we saw from De Beers throughout Africa was very much a natural legacy of British Empire.
14:35This was a particular era of colonialism where oftentimes one Western-based corporation would become more powerful than the colonized state-wanted business. The most famous of these is probably the East India Company, a British-based company that at its height accounted for almost half the world's trade and ruled over India. We talk about corporations having a lot of power today, and they do, but things were different in the past. Whatever misgivings you might have about, say, Jeff Bezos and Amazon, the company does not employ a standing army. The East India Company employed a private army of over a quarter million soldiers, twice the size of the actual British army.
15:15What Cecil Rhodes was doing in South Africa with the beers was a page out of that same corporate colonial playbook. He ran a Western company, wormed its way into another country, and extracted resources from it. To me, it's not that surprising that he was able to get away with all this, that most English people at the time were fine with it. But what did surprise me is that even back in Cecil Rhodes' time, even if most people in England had a worldview that you would have called pro-imperialist, shouldn't they even back then have at least been anti-monopoly? As in, maybe it was fine for England to pillage another country, But was it fine for one specific Englishman to pillage another country and hoard that wealth for himself?
15:55And like what you're describing, you know, if it were happening in America in modern times, it would be like an antitrust violation. Like you can't price fix. But this was why did this work when other things like it would be stopped? So one of my areas is antitrust. So I want to confirm your off-the-cuff legal assessment. You're absolutely right. Thank you. You're absolutely right. If you're the leading supplier of diamonds and you go to a new source and you say, I want to buy you, that's an antitrust violation. If you go with guns and tell people they're not allowed to sell things, that's probably like a couple of kinds of violations.
16:30It's a violation of a certain number of different laws. But actually, I think one of them would be the Sherman Act. That also would be an antitrust violation. The Sherman Antitrust Act, if you're not familiar with it, is the U.S. law that states that one company is not allowed to monopolize an entire industry. and that competing companies can't come together to agree to keep prices high against their customers. It was actually passed in the U.S. around the same time that Cecil Rhodes was first spinning up his diamond monopoly. The context was that here in America, the oil companies had formed what they called trusts, where competitors agreed to keep prices high, and the government, in response, had passed laws banning that behavior.
17:09Antitrust. Even though De Beers was not based in America, the government sometimes uses or tries to use the Sherman Act against foreign businesses that operate in the U.S., although the case of De Beers highlights why that's kind of difficult. So this was deemed to be an antitrust violation by authorities in the Department of Justice at least as early as in World War II during the Roosevelt administration. And there were some actions against De Beers, and De Beers basically conceded them. Now, these weren't the classic monopoly cases. These are easier cases. But De Beers effectively didn't show up for court when it was being sued by the Department of Justice.
17:52They just didn't go? They just didn't go. They kind of said, all right, you know, we're guilty of the antitrust laws in America. We'll just never go to America. They probably would have been arrested had they landed in New York. Oh, wow. And that also means that De Beers' property never went into America. All of the profits they gained from selling diamonds in the American market, and the American market was the largest global market, that was never De Beers. De Beers sold them to intermediaries. And in large part, it was because they were escaping any trust liability. We found a clip from this old TV show called Behind Closed Doors.
18:36In an episode that aired in the year 2000, the host, Joan London, got an interview with Anthony Oppenheimer, a member of the Oppenheimer family. The Oppenheimers took over De Beers from Cecil Rhodes. You can't do business there because of the fact that you're a monopoly. How do you deal with that? I don't accept we're a monopoly, really. I mean, I think we're a cooperative. But we feel that, in a way, this is a beneficial cooperative which assists everybody. The miner is getting a job all the way through to the retailer and then to the customer. The U.S. government continued to disagree with this position.
19:16We found a frontline interview with a former U.S. Department of Justice attorney recounting his experience just trying to bring De Beers to a U.S. court. The DOJ attorney said it took a while to even find a South African lawyer who would agree to serve the papers to De Beers. But eventually, the Americans found a lawyer who would take on the job of serving the papers. And later, that lawyer reports back. He wrote us an affidavit of his experience, which was that he took the court paper and took it to De Beers, and that the De Beers representative took the paper, ripped it into small shreds, threw it on the ground and stamped on it and basically threw him out.
19:54If you're behaving like this, there's a good chance you've achieved monopoly. De Beers operated with impunity. As long as the price of diamonds remained high, the company remained powerful. So De Beers protected the price. What De Beers did was gather up all of the world's diamonds and in a very deliberate way sell a certain amount every year to make sure that the price didn't go down. They didn't really have a whole lot of interest in what happened after the sale of those rough diamonds at the top of the distribution chain. Their business model was just to make sure they gathered up all the supply and sold just the right amount to maintain global prices.
20:40So De Beers had mastered the supply part of the equation. But starting in the 1940s, the company had a problem to contend with. Even though it had a monopoly on the supply of diamonds, it still had to juice the demand. So how do you convince lots of regular Americans to buy lots of expensive diamonds? And how do you do that when your company can't even open a store in America? That's after the break.
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22:57Welcome back to the show. So De Beers, the company founded by Cecil Rhodes, had two desires. Desire one, to maintain a global monopoly. Desire two, to never set foot in America. where Desire One might put them on the wrong side of the law. The company's solution for all this, it would shape the diamond market. So De Beers dreamt up this unusual arrangement where most of the world's diamonds were mined in South Africa and distributed in Europe. Those diamonds would reach the U.S., but through intermediaries. Throughout almost the entire 20th century, if you bought a diamond in the U.S., it was almost certainly a De Beers diamond, but you would never buy it in a De Beers store.
23:39so can you talk to me about like we've sort of talked about the top of the supply chain can you talk to me about like the path of a diamond from a mine to retail and about the culture around retail like can you just trace it for me yeah i'll give you the story in the late 90s because it's a little more complicated now i can give you a very confident story in the 90s so So in the 90s, most diamonds are extracted from Africa by a De Beers interest. They're then taken to London and through what's called the Central Selling Organization, the CSO, which is a De Beers entity. De Beers sells these diamonds to favored merchants.
24:30Here in the heart of London's financial district is De Beers Central Selling Organization, or CSO. This non-bescript building is essentially an urban fortress. This, again, is from that TV show Behind Closed Doors, which, as an aside, that show is kind of amazing. The host, Joe London, would just visit the kinds of places you wonder about. a U-2 spy plane, the Betty Ford Center, or, in this case, the De Beers Central Selling Organization. Inside, there are giant vaults, which hold steel boxes with hundreds of diamonds worth hundreds of millions of dollars. In the video, you can also see tables with enormous piles of diamonds that look almost like mounds of salt, which De Beers displayed on a table for London to view.
25:17This is where site holders, who are merchants handpicked by De Beers on the basis of purchasing power, reputation, and connections, come to buy raw diamonds. So if you're a site holder, you have a position, a very lucrative position, atop the distribution chain, and you are invited by De Beers to show up about 10 times a year. De Beers gives you a pile of stones and tells you how much to pay. And if you think the price is unfair, you don't want to pay. De Beers says, no problem, but never come back. Wait, seriously? Seriously. This is the exercise of a monopoly. Again, here's Joan Lunden interviewing Anthony Oppenheimer, a member of the family that owned De Beers.
Read the full transcript
26:06So how much money do they have to be prepared to put up each time they come? So somebody's got to be able to, 10 times a year, take half a million dollars of the goods he wants. And we expect them to take it in good and bad times. What he's saying is, if you want to do business with us, you buy our diamonds, whether you can afford to or not, at whatever price we set. It's so funny hearing a high-up executive of a company say something like this out loud. It's the way an empire treats its colonies. It's just the same old logic, but existing in one small part of the modern world. So they handpick their site holders.
26:46The way they're picked is these are individuals who, first of all, have very good credit. You take the diamonds, you pay them a couple days later. These are very significant purchases, purchases for very significant amounts of money. And is it just like, is it literally like a cardboard box just filled with like uncut stones? I don't think it's cardboard, but yeah, it's a little box of diamonds. You put it in your suitcase, attach a handcuff to your suitcase and your wrist. You fly to wherever you're going with those diamonds. You certainly don't chuck it. You keep it with yourself. And then you sell it at the next port.
27:21These uncut gems, sometimes referred to as uncut jams, sorry. These uncut gems go to London, then to Antwerp usually, then most go to Mumbai. Then they're cut into factories in Gujarat. Then most actually go back to Mumbai. From there, they go everywhere, including New York. The diamond districts where these are ultimately sold, they tend to be worlds unto themselves. Multicultural communities where people act in accordance with old traditions. In New York, disputes between sellers are adjudicated through a kind of internal diamond court, not through traditional courts. The community is so small and enclosed, it can self-police based on reputation.
28:00Brock says this old system has actually changed a little bit recently, but that this is how it's worked for decades. So these diamonds, they reach New York, and then what happens there? Like, I've seen the film Uncut Gems, and I've walked around the street, and the base of my knowledge is not going that much deeper. Yeah. Yeah, and that's actually not what's really happening. When New York was at its heyday, the things you see on 47th Street, you know, the retail, that's not really what's going on. People come from all over the world with polished diamonds to New York, mostly to sell to jewelry manufacturers.
28:40And jewelry manufacturers come from all over the United States. I mean, if you're a jewelry manufacturer in Houston, that's where you make the jewelry and maybe you sell it yourself or maybe you give it to another retailer. You come to New York and you buy polished diamonds. That's where you buy your stones. And, you know, this is really what 47th Street is. It's like a stock exchange. You have buyers and sellers all coming together in this one physical place. This explains the physical concentration of the industry. It's where buyers know there are going to be sellers. It's where sellers know there are going to be buyers.
29:16And a lot of this happens right on the street. You have one person giving another person a diamond. That person, the buyer looks at the diamond through their loop. Maybe it's not right. They go through another one. The negotiations happen in the street, in the back alleys, sometimes in the diamond dealers club, which is kind of the central office where the traders come and gather. And then once the buyers buy, they go and they make their jewelry. And sometimes the buyers are somebody like Tiffany's, and sometimes the buyers are people who make things for Tiffany's. What's strange, though, you still could not buy a diamond from a De Beers store, even though De Beers was a company supplying almost all the diamonds.
29:59Which meant the company was responsible for advertising and marketing a product that in the 20th century would never have its brand name on it. The marketing of diamonds would require some ingenuity. During the 1930s, De Beers had a demand problem. Europe was broke because of the war. De Beers couldn't sell more diamonds there. In America, some people were buying diamonds for engagement rings, but not many. And the diamonds they were buying were small and relatively inexpensive. De Beers needed help. It hired an American ad firm called N.W. Ayer. Ayer were sloganeering geniuses, responsible for the Army's Be All That You Can Be, as well as the slogan for another monopoly, AT &T.
30:40Theirs was, we may be the only phone company in town, but we try not to act like it. Ayer had to come up with a short, pithy argument to save the diamond industry, to convince Americans that big diamonds were essential. How do you convince people? I don't know, there's something about a good diamond where it sort of feels like, what is the argument of the advertisement that says you should buy a diamond? Yeah, the question itself is a fascinating question. I mean, what do you do with this rock? It doesn't do anything for you. It doesn't open a can. It's just a thing. And yeah, it looks kind of nice, but lots of things look nice.
31:21So the question itself is fascinating. How can this corporate entity create this cultural compulsion that we all have to spend a lot of money on this totally useless thing? Yeah. Like, you know, it's easy to make an argument that a lot of things are useless, but this is like really useless. This is really useless. Exactly. Right. Well, they did it in a variety of ways. I mean, A Diamond is forever. It was the number one or the number two as rated by the Madison Avenue geniuses. A slogan of the century. It was a wildly effective campaign. They went to Hollywood and made sure that Marilyn Monroe, when she was in her movies, wore diamonds.
32:03Men grow cold as girls grow old and we all lose our charms in the end. But square cut or pear shape, these rocks don't lose their shape. Diamonds are a girl's best friend. They made sure that diamond deliveries as part of proposals were in Hollywood movies. Starting in the 1940s, De Beers would just give free diamonds to movie producers in exchange for those producers putting diamonds in their films. According to the marketers, the diamond shouldn't just appear in the movie. Ideally, it should be a surprise gift from a man to a woman. The premise was that if the diamond was a surprise, a marital gift, it was less likely that there'd be some rational discussion between the couple about price.
32:55And now for the important question I wanted to ask you. Well, it's about time. I'm dying of curiosity. This is from the 1944 film Men on Her Mind. You know I'm madly in love with you. I want you to marry me, Lily. You're in love with me too, aren't you? Well, if I'm not, then I'm afraid I don't know what love is. Here's your engagement present, darling. Oh, Jeffrey, it's beautiful. They really do not make sponsored content like they used to. The psychology and the behavior behind this is remarkably well thought out. A diamond is forever not only means that you can hallmark love and marriage with a diamond, but it also means you will never sell it.
33:40Right. Because to some degree, if there were a resale market for all the diamonds out there, then that would also make the value of diamonds go to zero. So they convinced lots of people, especially, by the way, GIs who had a sudden influx of cash to spend the standard is, I believe, one or maybe two months worth of income on a diamond for their wedding ring and made sure that women never sold them. Yeah. Held them forever. The diamond engagement ring. How else could two months salary last forever? A diamond is forever. There are two things in the world that last longer than time. Love is one of them.
34:21A diamond is forever. So in the 1940s, 50s, and 60s, they had all sorts of really magnificent advertising campaigns to make sure that we Americans would continue to buy diamonds. They, by the way, did the same thing in Japan and in Europe. Nobody bought diamonds in Japan until the beers came in with their marketing gurus. And now everyone in Japan who gets married buys a diamond also. What did people in Japan buy when they got married instead? Like watches. Really? Yeah. I mean, I'm sure there's a more accurate answer than that, but it was not part of the culture to buy the engagement wedding ring.
35:00If only Joan Lunden were here to provide us some more certainty. Well, here she is talking to a De Beers exec. I was impressed to learn that in Japan, they never used to give a diamond ring when they got married. But De Beers changed that, didn't they? In 1966, when really we got started in Japan, most people would either exchange suits, they'd give pearls, and we really put forward the simple idea that the diamond is a better symbol. It's amazing. I mean, from six out of 100 Japanese women who got a diamond in 1966, now something like 80 out of 100 get a very nice half-carat solitaire. So it's a hell of a story.
35:39The De Beers marketing in Japan kept the same slogan the company used in America. A diamond is forever.
35:49Between 1938 and 1941, the diamond industry's American ad campaign increased sales of diamonds by 55%. After they expanded to Japan in the 60s, they had similar success. Before the campaign, under 5 % of Japanese women received diamond engagement rings. By 1981, that number was at 60%. The story of the diamond, dreamed up by marketers in America for an international monopoly of British colonizers, it succeeded. It's funny. It's like I never thought of like the concept of an heirloom being about someone protecting their monopoly, but it really works out to the same. You're like, I'm going to implant the cultural idea that there shouldn't be a secondary market for this.
36:35It's the cleanest illustration of how economics has got to incorporate the power of norms and culture. And these preferences are not just looking for food and shelter. These preferences are inculcated with us, and they both create and manipulate markets in ways that are really hard to fully fathom. So that's another way of saying, if you want to be a really good economist, you also have to be a good psychologist. And I also think that part of the corporate strategy is for you to only think what's happening on the ground and not to think what's happening on the mothership. Right, right. It's not like De Beers is running ads that are like, a diamond has a really painful colonial history.
37:22It's like a story that's hiding a story, not a story that's telling a story. Yeah, yeah. After the break, what happens when that story gets revealed? And what happens when a monopoly begins to crack?
37:59We'll see you next time.
38:08Sierra, let's get moving.
38:38WhatsApp.com.
38:50So I had known that at some point De Beers essentially started to slip. My first assumption was that it had something to do with blood diamonds, with conflict diamonds. Conflict diamonds were diamonds that were being sold to fund civil wars in places like Sierra Leone and Angola. Many international consumers, understandably, did not want to buy them. While that did create a problem for consumer demand, De Beers actually navigated it. The diamond industry enacted this certification program in the early 2000s, so consumers could know they were buying diamonds that hadn't come from war zones. De Beers' problem actually ended up not being about demand, but instead about the part of this that had never been a problem before.
39:31The company lost control of the diamond supply. So like De Beers has a monopoly or a near monopoly for decades and decades and decades. At some point, that monopoly gets upset. When does that happen? De Beers controls the diamond industry with almost a categorical iron fist for much of the 20th century. And it starts to loosen in the late 1990s. A couple of things happen. One thing that happens is that there's a new diamond mine in Canada and another one in Australia. Now, the introduction of a new mine isn't surprising. It's a regular occurrence. Somebody finds a new source of diamonds. But at least previously in the 20th century, De Beers was very effective in going to the new mine owner.
40:19And much as Cecil Rhodes did at the beginning of the 20th century, buying the entire site. In Canada and in Australia, the owners of these new mines resisted De Beers' entreaties. And by definition, that meant that De Beers had less control over global supply. As De Beers was encountering these new sources, these new sources of supply from Canada and from Australia, they also started to get some pushback from the former Soviet Union. Really? For many years, the Soviet Union, mostly Russia, was the source of a lot of raw mines as well, or mines for raw diamonds. And De Beers, in a fairly quiet arrangement, entered into an exclusive purchasing contract where they would just buy all of Russia's diamonds, all of the Soviet Union's diamonds.
41:17And of course, there is a certain irony that this was happening during the Cold War when America and the Western powers were very wary of allowing the Soviet Union to acquire hard currency. Well, De Beers was giving them hard currency. And then, of course, selling the diamonds in the United States. It's hard to stop. Yeah, exactly. It is hard to stop. And, you know, it's not the most profound irony in this story. So around the late 1990s, as Russia was emerging from the former Soviet Union, You had all of these new raw energy companies and mining companies coming out of Russia. They wanted to go out on their own.
42:03This was an unfortunate development for De Beers. Suddenly, diamond mines would just be found in a lot of places where the company couldn't throw their weight around and buy out or bully people. Russia, Australia, Canada, places where the company could buy a few mines, maybe, but where in general nobody was okay with colonial economics. And if the 1990s weren't a bad enough time to be a diamond monopolist, things ahead actually looked worse. In the 2000s, lab-synthesized diamonds would actually begin to improve. Do you know the story of just who was the person who figured out how to synthesize diamonds in a lab?
42:39How did that happen? Yeah, I mean, everybody knew what diamonds were. I mean, they were a bunch of carbon molecules together in a certain lattice. I didn't know. Everyone but me knew. Okay, all right. If you told me diamonds drip out of stalactites or something, I'd be like, yeah, probably. Well, everyone has a PhD in physics or in physical chemistry. They all knew. Yeah. And it was during the 1950s that certain manufacturing efforts to create diamonds were begun, not so much to create jewelry, that was really hard, but mostly to create industrial diamonds, creating drill bits and other kinds of fine machinery to help manufacture other things that are really hard, the polished steel and other kinds of products.
43:26I should say this is one place diamonds are useful as a material in industrial cutting tools, although the diamonds used there are lower quality than the kinds you see in a ring. Those industrial diamonds, they were the first diamonds made in labs. And then more recently, these labs can create actual diamond gems. that are very comparable to the most expensive gems that we have for engagement rings. Got it. Got it. Got it. And so that represents one more source of just diamond supply in the world. And one more reason that for the companies that are mining natural diamonds, they need to tell a brand story attached to it to maintain its value.
44:08Exactly. In the 1950s, 1960s, De Beers said, a diamond is forever. Just buy a diamond. And 2010, De Beers is saying, buy a natural diamond from De Beers. And we can tell you exactly where this diamond came from, where it came from the earth, how many millions of years it took for carbon and heat and pressure to produce this thing on your finger. It was almost like a farm to table story. Like we are going to take this thing from this particular part of the earth and we're going to bring it to our office in London and then we're going to sell it and we're going to give it to you. It's, yeah, it's farm to table jewelry.
44:50And when you look at this, like this story in general, maybe this part of the story in particular, like, are you like, how do you feel? Like, are you like, oh, those evil geniuses? Are you like, like, does it feel like, do you feel like you're watching a tobacco company? Do you feel like you're just watching human behavior exert itself in an interesting way? Like, what is your emotional response to the story that you're time. Yeah, I like the analogy of the tobacco company, to be honest. We all know, development economists know that when Western companies go into developing nations and extract natural resources, there is at best a very mixed long-term benefit.
45:29And usually it's long-term harm, does not develop the kind of local industries that makes countries thrive. So the legacy of De Beers in Africa, I think it's safe to say it's not a happy one. Yeah. You see a lot of wealth going to things that really, in a world of scarce resources, probably could go to better uses.
45:58In the past few years in South Africa, statues of Cecil Rhodes have begun to be removed, though the scholarship that bears his name still exists. One group that supported tearing down Cecil Rhodes' statues that surprised me? DeBeers. In an email to us, a DeBeers spokesman wrote that, quote, Although Cecil Rhodes is part of our early history, he does not represent the company we are today. While we cannot rewrite history, we can bear the responsibility of history to build a better legacy. And we put tremendous resource and energy behind this every day. End quote. We all think differently about Cecil Rhodes now.
46:36But the story his company told us about diamonds, that has mainly stuck. And I should also say, despite the official end of the De Beers monopoly, the rocks are still expensive. De Beers now shares a majority of the market with one Russian competitor, a company named Alrosa. Somehow, despite what should be competition, the price mysteriously remains quite high. The main difference is you can now go to a De Beers store in the United States. you can buy a diamond there if you want should you i don't know
47:15as somebody who has like an undecided mind about capitalism and global trade everything in life is so complicated everything in life is so filled with trade-offs and and you know something like a computer or an iphone which benefits the world in so many ways but the production of which also hurts people in so many ways. I look at the ethical calculations involved in owning an iPhone and I'm just like, ah, you would need a moral supercomputer to figure this out. At least that's how I feel. Other people might feel like it's more simple. With diamonds, the misery to utility ratio is so bad. That at least feels more straightforward.
47:54Right. If you buy a designer jacket, at least it keeps you warm. Designer diamond doesn't do anything other than just show people that you have a diamond. And I also think that it's quite clear that very little of the wealth that is generated in this particular industry stays with the workers who work in the mines. And in that sense, yes, this is just a reflection of globalism. But I do think that diamonds offer an extreme instance. And maybe there really is a good reason to say that participating in one market really just does a lot more harm than participating in another market. Do you get paralyzed when it comes to just buying consumer goods?
48:38Like, are there a lot of things that you don't participate in because you feel like you can see the strings hanging off of them? I would never present myself as, like, a highly ethical consumer. I mean, it would be disingenuous for me to say that. I should say just for the listener you're covered in diamonds right now you're wearing a full diamond coat you have a diamond setter I should have said this earlier I'm big on bling that's for sure yeah so you know I wouldn't buy a diamond I don't think if I were to buy a diamond I'd have a preference for buying a live grown diamond you know I have to say though parenthetically I have acquired a real appreciation for the beauty of diamonds.
49:28I find myself just looking through a loop at a highly clear polished diamond and just kind of losing myself, much more so than when I started looking into this. Doesn't that bother you? Isn't it so annoying that there's such a thing as beauty in something that you would not want to find beautiful? Doesn't it annoy you? You know, at those moments, the only thing I feel is just the appreciation of beauty. And it is beauty. Is there something very human about the sparkles and the facets and just kind of looking at this kaleidoscope of color? But, you know, appreciating beauty is different from spending on it.
50:07Yeah, I think that's about right.
50:13Professor Barack Richman. He's a law professor at Duke University and a visiting professor at George Washington University. His book, which we highly recommend is called Stateless Commerce, The Diamond Network and the Persistence of Relational Exchange. Thank you for being so generous with your time. Appreciate it, PJ. Good to meet you, and go birds, right? Yeah, go birds.
50:38After the break, Noah, who produced this story, has a recommendation for a precious gem from the internet.
50:59Thank you.
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52:13Search Engine producer Noah John, welcome to the studio. Thanks again, PJ. So what is the recommendation that you have this week? The recommendation I have this week is a hilarious video that first went viral on TikTok despite how much time I spent on TikTok. I actually discovered this one on Twitter or X as we should say. Yes. Because it went viral on X as well. But this one is basically like a younger teenage girl doing what's called like a get unready with me video. And what is a get unready with me video? So basically, you know, the premise of like a get ready with me video is you're doing something like getting dressed, doing your makeup, explaining the events that are to come in that day or evening.
52:57So this is like kind of the opposite. You're still like showing off products, what you're wearing, et cetera. But you're kind of recounting the day rather than describing what's to come ahead. Okay. So it's like, here's what happened at the party. And this is like the shirt that I was wearing exactly yeah so in this it starts off as kind of you know your typical get unready with me until it's interrupted by this girl's younger sister who wants to borrow the scissors okay hey guys get unready with me um after coming back from downtown but yeah it's been a really long day today so we're just gonna take this off huh so she's like off camera interrupting to get a pair of scissors and then she just leaves the room yeah exactly and she doesn't say what the scissors are going to be used for there's real narrative tension yeah i got from the dollar and then after that i'm gonna put just lotion then a blood-curdling scream so she runs back into the room pointing at a chunk out of the front of her hair yeah not good what i really love about this though like i don't know you can really see like genuine love from the older sister and just like a maturity to be able to like calm down this no she's like holding her sister and immediately going into like sort of a maternal problem-solving mode yeah and i really like how she's you know both calming down the mom by like telling her you know there's nothing to see here who's outside the room while at the same time like problem solving with the younger sister it's very sweet it's like okay so so wait so now what happens?
54:37So what's going to happen is because they cut off a chunk of her hair in the front, they decide that bangs are the best option. And not being a trained hairstylist, they decide the best way to learn how to do bangs is through TikTok, of course. Oh, God. Okay.
55:03God, I basically grew up in this house. Me too. I thought it was with me and a brother. Then we had a younger sister. So three sisters. She had to deal with our fighting of various sorts. So now she's actually got like a misfits thing where there's like the devil lock in the front. Yeah. But I think that's part of the process. Oh, that doesn't look terrible. Not bad. It's really not bad. They're kind of cute bangs. What have you done to my life? This is so adorable. Oh, my God. Let me put down my hair. Is that you? No! She honestly looks good. Should be acceptable enough for a picture day. I feel like I was waiting for something, like, awful to happen, and it's just really sweet.
55:46Yeah. Well, that's if the mom agrees. Oh. Pretty right? Why? Whose idea was that? Valentina. Come on, guys. Come on. Every girl is pointing at a different girl. Go show your dad. Go show your dad. Wow. Pray for them. It's funny. It's like, it has like a perfect three act structure. Yes. It's like the problem is introduced. The problem is like an attempt is made. And then you like find out how it goes at the end. I also love how even like once you, you feel the resolution where, you know, the hair looks pretty good. Then they remember, oh, what about mom? Yeah. And then there's the plot twist of what about dad?
56:23What about dad? I really, it's very, I don't know. My TikTok algorithm is tuned towards like the hell mouth where like I only see the worst stuff and I can't stop it. And I don't know how to get on this TikTok where it's like wholesome family drama TikTok, but I would really like this TikTok instead. Yeah. No, the funny thing is my TikTok feed may be more like yours because like I said, I found this on Twitter, which I don't know. I feel like people, most people's Twitter feed is probably, you know, the opposite minus a lot of jokes. A lot of people describe like doom and gloom on their Twitter feed.
56:59But yeah, I understand why you love this I understand why people love this It's really nice And the original quote We too I think said Like this is literally A coming of age movie Like if this girl needs to Get like a screenwriting contract God she will They'll turn it into like An eight movie series That is terrible Yeah No this is really Thank you Thank you
57:24Search Engine Search Engine is a presentation Of Odyssey And Jigsaw Productions It was created by PJ Vogt and Shruthi Pinnamanini and is produced by Garrett Graham and Noah John. That's me. Theme, original composition and mixing by Armin Bazarian. Fact-checking by Sean Merchant. Our executive producers are Jenna Weiss-Berman and Leah Reese-Dennis. Thanks to the team at Jigsaw, Alex Gibney, Rich Pirello, John Schmidt, and to the team at Odyssey, J.D. Crowley, Rob Mirandi, Craig Cox, Eric Donnelly, Matt Casey, Casey Clouser, Maura Curran, Josephina Francis, Kurt Courtney, and Hilary Schuff. Our agent is Oren Rosenbaum at UTA.
58:07Our social media is by the team at Public Opinion NYC. You can follow and listen to Search Engine with PJ Vogt now for free on the Odyssey app or anywhere you get your podcasts. thank you for listening see you next week
From the publisher
They’re shiny rocks that we’ve somehow agreed embody romance and eternity. But diamonds, it turns out, are not as rare as we think. And these days, they can be made in a lab. So why do we continue to spend so much money on them? This week, the story of a century-long, international scheme. And the story of how it fell apart.
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