Diamonds are considered a unique resource because the price level is always on the increase (without any big swings) unlike other commodities such as gold whose prices fluctuate (sometimes violently) in the market. The constant increase in the price of diamond is usually attributed to the monopolistic behaviors of the infamous De Beers Company. But the details of the monopoly is concealed to the public knowledge because it includes not only private institutions but also various governments around the world including the UN.
The initial attempts of a cartel was done through the Central Selling Organization (CSO) which was owned by the De Beers Company with the aid of South African government (the primary diamond producing nation) which let the De Beers as the defacto sole license receiver for operating the mines. But this was not a complete control over the global supply because the rest of the diamond producing nations were not part of it such as Angola, Botswana etc. So the demise of the CSO was envisioned around 1992 due to increasing competition for the cartel. Even Murray Rothbard praised the potential demise of the detrimental cartel.1
But the events took a turn for the worst. The De Beers and other companies returned stronger than ever with even more control over the diamond supply market.
What the public ignored was the rise of a subtle tool used by the De Beers known as the Diamond Trading Company. The DTC was incorporated as a joint venture between the De Beers, South African government, Government of Botswana and the Government of Namibia. This lucrative venture effectively allowed them to control 75% of the world’s diamonds by value. This allowed the price of diamonds to stay relatively high and therefore create an artificial price level for the commodity. However, this was not the end of the deal. The governments around the world(and De Beers) were on an even bigger mission to control all the supply in the world—this time through the UN.
The late 1990’s saw the outrage over Blood Diamonds with numerous NGO’s asking for an immediate regulatory action from the UN. Blood Diamonds are diamonds that are mined through slavery and sold for weapons that fuel a militia’s (usually a rebel group) battles. The DTC took advantage of this outrage—in spite of accusations that they too were involved.
The Kimberly Process Certification Scheme was the proposed solution to stem the flow of Blood Diamonds. The Process set forth the rules that all diamonds sold and mined must be certified as “conflict free”. It set up the World Diamond Council (WDC) to look after the Certification Process. The WDC consisted of the major diamond producing companies and gave them regulatory authority through UN. WDC is nothing but a cartel in disguise.
There are 6 committees in the WDC which is currently dominated by representatives from the De Beers Group, diamond companies based in Belgium and the World Federation of Bourses (WFB). WFB is another small sized cartel in Antwerp consisting of 29 diamond bourses.
Any diamond that enters the market must be certified by WDC and if not, it will be considered a conflict diamond and the individuals involved will be prosecuted.
But this is just a smoke screen for a bigger motive held by the institutions of WDC. The regulatory authority is used to stop large amounts of diamonds from entering the market and thereby controlling the supply and price.
In fact, WDC constantly criticizes mining companies that are not part of the cartel and subjects them to criminal prosecution. The latest victim is the Marange rough diamonds from Zimbabwe that is demonized by WDC and DTC as sponsoring war when in fact it is a threat to the global diamond supply.
All in all, the monopoly supported by certain African Governments and the UN ensures the price of diamond stays relatively high and in turn raking in undeserved profits to governments and corporations. The day there will be a free market system, that will be the day diamonds stop being forever.
1 See Murray Rothbard “Making Economic Sense” Chp.91
