The history of the diamond industry is a story of war, colonialism, monopoly, and strife; yet its foundation in the economy and society is firmly laid. The modern diamond market began in the late 19th century with the De Beers company under the control of Cecil Rhodes, the namesake of Rhodesia (modern-day South Africa). Rhodes, a British businessman who found his beginnings by renting out water pumps to miners in Africa, bought out multiple diamond mines and combined them into De Beers Consolidated Mines, Ltd. Rhodes and his partners eventually held control of the diamond industry itself and turned De Beers into a global monopoly for diamonds. Even after restructuring its business model following many accusations of monopolistic practices, De Beers continues to hold a large stake in the diamond market, still marketing the age-old slogan: “a diamond is forever.” However, looking past its face value, the seemingly-prosperous diamond industry is facing new and difficult challenges: the value of diamonds is slowly decreasing, a reality that diamond sellers will find tough to deal with. Priced at $6,100 in 1978, a similar diamond cost $11,000 today. To those unfamiliar with the effects of inflation, this would seem like an increase in value, but alas, these numbers are lying to us.
The increase in price is in terms of nominal value, meaning the value at which a good or service is priced in that year’s dollars. In order to see the change in the essential value--or real value of the diamond--we must compare the two prices using the same base year’s prices (i.e. fixing the 1978 price in terms of 2018 dollars). Once we adjust for the real value in the diamond, we find that a diamond in 1978 cost about $60,000 in today’s money. As time goes on, prices for goods and services tend to rise which obfuscates price comparisons across two periods of time. This is what causes the discrepancies between nominal value and real value. With this in mind, we see that the real value of the diamond decreased by an astonishing 81.67%. Obviously, this is cause for concern among diamond producers and sellers who are profiting much less than they had been previously.
Another big issue is the question of where the diamonds on those fancy rings really come from. In the 1990s, it was discovered that diamonds were being sold abroad in order to fund wars in Sierra Leone, a country rich with natural resources yet poor in economic and political stability. The Revolutionary United Front (RUF) in Sierra Leone was rebelling against the one-party regime under president Joseph Saidu Momoh. In order to fund their weaponry, the RUF took over control of diamond mines in the area. They traded the diamonds to merchants in Europe to purchase more guns and weapons, which sustained the civil war in the country. Sierra Leone is just one of many examples of the impact that diamonds have had in funding civil wars, but it is when consumers began to take notice. Especially after the release of the 2006 feature film Blood Diamond, starring everyone’s favorite Leonardo DiCaprio, many consumers, specifically millennials, began to turn away from the diamond industry and stopped buying the precious mineral. The stigma surrounding the diamond industry in this respect had a strong economic effect, causing a drop in demand.
However, the diamond industry is trying to regain their foothold on the market. To combat the blood diamond issue, the United Nations established a certification system called the Kimberley Process (KP) in 2003 that prohibits trade and sale of any conflict diamonds for participating countries. In fact, KP includes 81 countries around the world that make up 99.8% of the total production of rough diamonds. To consumers, the Kimberley Process acts as an official stamp of approval that the diamonds they are buying are in essence “blood free.”
Perhaps the most frightening developments in the diamond industry is the artificial production of the stones. Just as in virtually every other industry, technology is rapidly changing the game, and those who cannot keep up will only be left in the dust. Rather than locating and mining diamonds from the ground, new technology allows producers to essentially grow the gems in the comfort of a cozy insulated laboratory. Diamond Foundry, one of the new disrupting companies based in California, is capable of producing diamonds almost identical in size and quality to those stones that are mined from the ground. Not to mention that Diamond Foundry can pump out their artificial diamonds at competitive rates of up to 300 gems in a two-week batch. To put the icing on the cake, the price of these manufactured diamonds are lower than that of mined stones. Although these diamonds may not be as “legitimate” as their naturally-found counterparts, buying these stones puts to bed any concern that your money is going to fund bullets and machine guns in Africa.
Since this capability is relatively new in the diamond market, sales for the artificial diamonds are still marginal in comparison to the revenues that mined diamonds bring in. Yet, as is the case with most industry disruptors, they start small and end huge, throwing the entire market into disarray. Some forecasts predict that as diamond mines begin to dry up in later years the new grown diamonds will take precedence. Maybe the slogan “A Diamond is Forever” is not all too accurate, at least for the diamonds in the ground.
Arends, Brett. “Diamonds Aren't an Investor's Best Friend.” The Wall Street Journal, Dow Jones & Company, 2 Feb. 2012.
Collier, Paul. “The Market for Civil War.” Foreign Policy, Foreign Policy, 2 Nov. 2009.
Goldschein, Eric. “The Incredible Story Of How De Beers Created And Lost The Most Powerful Monopoly Ever.” Business Insider, Business Insider, 19 Dec. 2011.
“In the Rough.” The Economist, The Economist Newspaper, 30 June 2016.
Miesen, Floreana. “Blood Diamonds.” D+C, 21 May 2012.