De Beers and US Anti Trust Law - Case Study Example

Forever: De Beers and US Anti Trust Law Introduction Diamond market is dominated by De Beers world over for more than one hundred years since its inception in 1880. The diamond trade has been managed by a 'cartel' since these days headed by De Beers mining company. Once the availability of diamond mines shrunk to Africa and a few in Brazil, the diamond mines in Africa controlled the availability of the diamonds in the market and their price. De Beers slowly and steadily ensured that all the diamond mines in Africa, specifically; South Africa was in their control or was working in line with their decrees. Most of the mines in South Africa were bought out by De Beers and the others started working closely with them in order to fix the price for the rough and uncut diamonds. The Diamond Market With the discovery of large mines in South Africa, the diamond availability in the world market suddenly reached a high. In order to ensure that the prices of the diamond in the market are maintained, the supplies had to be limited. The miners in South Africa which was the lead producer of diamonds, started working together and created a 'cartel' that would discuss and decide the price of diamonds in the world market. This cartel was formed with De Beers in the lead and they coordinated the entire operation of forming this initial syndicate that would canalize and fix the supplies of diamonds in the world market. This also ensured that every body in the trade benefited because it maintained the price of the diamond in the world market without allowing it to fall or rise phenomenally. Once the diamond mines in other locations of the world were discovered, the South African control over the world market with respect to the supplies of the diamond mines came down. More mines in Angola, Russia, Congo and Zaire started to dominate the world market and the South African share in the market came down to 17%. However, De Beers by enforcing clear commercial and economic control on the market could bring these people also under control and ensured that the price of diamonds does not fall and continued to rise or stabilise even when the supplies of diamonds kept rising. This meant that De Beers had to buy out from the market some of the diamonds that was available to bring stability to the pricing. This resulted in a large stock pile for De Beers. The company resorted to both buying as well as selling of diamonds in order to bring down the prices or raise the prices as the need may be. This ensured diamond price was under control and the miners did not suffer. De Beers and the US Government De Beers has been a practising monopoly. They tended to control the price of the diamond market and this meant that they violate the US Antitrust law and its governing principles. De Beers was violating every one of the Anti-trust law principle except for the consumer protection which De Beers says it covers. But then, even that would be under question on analysis. US Diamond Dealers mostly dealt with the buyers of De Beers diamonds. The identity of the diamonds is lost once they reach the coast of US. Though the diamonds are not known to have originated from De Beers, the company as a brand was very well known. The US government and its Department of Justice were also aware of the violations of De Beers and they have taken multitude of steps to bring them under the book but these are yet to materialise. The relationship with the diamond traders in US and that of the government is certainly not one for long and sustained relationship. It has to be direct and legal to be sustainable. In order to do this, either the company should change its method of operation or change the law to accommodate such a change. De Beers, the Illegal trade and the US Market The structure created by the anti-trust law is in line with the thinking of the greatest minds on economics. In addition to that, any violation of the basic principle of capitalist and free economics would only lead to the decay of the structure so carefully erected. De Beers is a violator of this structure. All the justifications that they produce now as protecting the customer interest is to protect their own interest. This methodology does not protect any country's or its people's interest. Really what happened in the early days of De Beers was nothing but plundering of a nation's wealth. Individuals have accumulated their wealth over a period of time to a degree that is beyond comprehension so much so that they are larger than the GDP of many of the African countries that they say they are protecting. And comparing OPEC with De Beers is like comparing the democracy in US with the 'democracy' that elected Saddam Hussein. May be Iraq accumulated wealth during Saddam's period but was it distributed to the people of Iraq and did Iraq prosper in the true sense of prospering De Beers has literally 'robbed' the people of South Africa off their richness. So it is, doing the same thing in Namibia and Botswana. What is happening to the rich poor divide in these countries How many of the natives prospered during this century of De Beers US Government should come down heavily on the monopolistic tendencies of De Beers. It is high time this is revised and the world trading order is restored in case of diamonds. De Beers should change its colour; modify it to fit into the legal tenements of trading across the world. No well meaning country in the world will accept such behaviour of any company. Conclusion It is clear that De Beers violates the basic laws of free enterprise and this should be taken seriously by the governments of both US and UK. In conjunction with the UK government, US should initiate action against this company to ensure that legitimate business practices are adopted by this company. Diamond trading has been sporting the illegal cloak for too long in this world. Smuggling of diamonds is one of the major businesses most of the terrorist organisations resort to, to accumulate wealth for their nefarious activities. And De Beers is a legitimate company that does illegitimate business. Most of the work done by De Beers is not over the board. It is right that both the company and the US government make strong moves to correct this behaviour. References 1. Debora Spar, 6 Sep 2002, Forever: De Beers and the Antitrust Law, Harvard Business School Publishing. Read More