The Soviets immediately saw the benefits of this monopolistic arrangement. Since, however, Soviet foreign policy was designed to isolate and undermine South Africa, the Soviets preferred to remain silent partners with De Beers in the diamond business. The Soviet Union had insisted from the outset that Oppenheimer publicly deny the existence of any deal, and, in 1963, in the annual report of De Beers, "On account of Russian support for the boycotting of trade with South Africa, our contract to buy Russian diamonds has not been renewed." What he did not put in the annual report was that the Russian diamonds were arriving through a corporate front in ever-increasing numbers. Indeed, Oppenheimer had arranged to buy out the entire Russian production of uncut diamonds, an arrangement that persists to this day.
Oppenheimer needed a tight-knit staff that could discreetly direct all the operations of the mines, the diamond buyers, and the distribution network from South Africa. He located his headquarters, as had his father, in the Anglo-American Building at 44 Main Street in Johannesburg. In theory, Anglo-American and De Beers are two separate entities; in fact, the Oppenheimers, who own a controlling interest in both companies, treat them as a single empire, Anglo-De Beers. The Anglo-American Company provides De Beers with "technical services" such as mine managers, engineers, architects, bookkeepers, lawyers, and public relations advisers. These technicians nominally remain on the payroll of Anglo-American and are only on "loan" to De Beers. In fact, they operate the mines, supervise the logistics, make the financial arrangements and hire personnel for De Beers. They report directly through a global telex system to a suite of offices on the fourth floor Of 44 Main Street, called simply "Diamond Services."
Diamond Services is in reality Oppenheimer's staff for running the diamond cartel. It is composed of only about a dozen men. The strategic objective of the staff is to preserve the delicate equilibrium between the world supply and world demand for diamonds. To achieve this balance, the staff uses its detailed knowledge of all diamond prospecting possibilities to determine when new diamond mines will be brought into production-or closed-and the level of production. It also formulates plans for dealing with possible competitors, either by making arrangements with them or buying them out directly. And it closely monitors all aspects of the far-flung diamond business.
In England, Oppenheimer controls the distribution of gem diamonds through the Diamond Trading Company, which is headed by his cousin, Sir Philip Oppenheimer and operated by Monty Charles. Also, in England, Oppenheimer controls the Charter Company which, in turn, owns substantial interests in some of the supposedly independent mining companies with which the Diamond Trading Company has an arrangement to buy diamonds. For example, Charter owned 25 percent of the Selection Trust Company, which held diamond concessions in Ghana and other West African countries-and sold these diamonds to the Diamond Trading Company.
In Luxembourg, Oppenheimer has a subsidiary called Boart International that holds, in turn, controlling interest in some of the largest manufacturers of diamond drilling equipment in the world. Through this Luxembourg corporation, he was able to dominate the entire industrial diamond business. Moreover, through a subsidiary in Ireland called the Shannon B Corporation, he was able to control the distribution worldwide of diamond abrasive powders for industry.
With the enormous profits from the diamond cartel, Oppenheimer built a $15 billion mining conglomerate that operated on five continents. His father had invested heavily in gold mines in the Orange Free State, even though the price of gold was then fixed at $35 an ounce, and gold mining was unprofitable. As the price of gold rose, Oppenheimer expanded the gold mining until, in 1980s, his companies produced nearly one-third of all the gold produced in the world. As the gold mines in South Africa also yielded uranium oxide as a by-product, Oppenheimer also became one of the world's largest producers of uranium. Oppenheimer gradually expanded into platinum, copper, tin, manganese, oil, lead, zinc and other strategic minerals. By 1980s, his congeries of companies accounted for more than half of the value of South Africa's mineral and industrial exports. They also had international connections. For example, through Anglo-American Corporation he had become the second largest foreign investor in the United States in 1980s.
Oppenheimer was personally able to control this vast corporate complex, though he had only a small percent of the equity in it, through an ingeniously constructed pyramid of ownership. At the top of the pyramid was a private firm called E. Oppenheimer and Son. The chief shareholder in it were Harry Oppenheimer and his children, Nicholas and Mary Slack. The principal asset of E. Oppenheimer and Son was ten percent of the shares of the Anglo-American Corporation. This block of stock was sufficient to give Oppenheimer undisputed control of it, since another 41 percent of the stock was held in the treasury of De Beers which was controlled by Oppenheimer.
At the next level of this complex structure, Anglo-American held a 52 percent interest in an investment trust called Anamint. Anamint, in turn, held 26 percent of the shares of De Beers-- a cross-holding that allowed Oppenheimer to appoint the board of directors of both companies.
The pyramid then dramatically widens with De Beers and Anglo-American owning pieces which when combined are tantamount to a controlling interest in seven of the largest conglomerates in South Africa. These investments, which included Anglo-American Gold Investment Company, Anglo-American Coal Corporation, and Johannesburg Consolidated Investment, encompassed most of the mining and industrial economy of South Africa: the companies, which themselves are holding companies, owned more than half of all the gold mines, the major insurance companies, the largest privately owned steel company in Africa, and virtually the entire petrochemical industry in South Africa. A government investigation of the holdings of the Oppenheimer empire found that it exercised direct control over 900 major companies in South Africa.
Finally, at the base of the pyramid, Anglo-American controlled two international companies-Mineral and Resources Corporation in Bermuda and Charter Consolidated in Great Britain which together dominate mining companies on all five continents.
Because public investors owned stock in most of these corporations but did not exercise control, the pyramid structure permitted Oppenheimer to expand the reach of his empire without diminishing his personal hold over it. Because of this enormous leverage over these interlocking companies, he can act with swiftness and, if necessary, stealth, in acquiring new properties.
The financial holdings of the Anglo-De beers corporate pyramid provide the means for protecting the diamond invention in adverse times. When new diamond strikes are made, it can orchestrate their purchase using its corporate intermediaries. When there is a temporary decline in retail sales of diamonds, it can use its financial reserves to buy back diamonds in the pipeline to prevent any decline in price. When influence is needed in diamond producing nations, it can use corporations in controls in those countries to provide incentives to their leaders not to infringe on the diamond invention. Like pawns on a chess board, the swirl of corporations in the complex are used to safe guard the all-important queen in the game: the diamond cartel.
[13]
The Diamond Mind
Control of the world's diamond mines was a necessary but not sufficient condition for perpetuating the price of diamonds. If the public's appetite for diamonds decreased precipitously, as it had in the Depression, or women's fashions suddenly changed, as it had with coral and pearls, De Beers would not be able for long to keep prices from collapsing, no matter how ruthlessly it cut back on production from the mines. To complete the diamond invention, De Beers had to control demand as well as supply, and this required some manipulation of the psyche of the diamond buyer. What was necessary was the creation of a mass mentality in which women would perceive diamonds, not as precious stones that could be bought or sold according to economic conditions or fashions, but as an inseparable part of courtship and married life.
In September 1938, Harry Oppenheimer journeyed to New York City to investigate the possibilities of cr
eating such a diamond mind. He was met by Gerald M. Lauck, who was the president of one of the leading advertising agencies in the United States, N. W. Ayer. Lauck and N. W. Ayer had been recommended to Oppenheimer by the Morgan Bank, which had helped his father consolidate his financial empire. His bankers were clearly concerned by the worldwide decline in the price of diamonds.
In Europe, where diamond prices had collapsed during the Depression, there seemed little possibility of restoring public confidence. In Germany, Austria, Italy and Spain, the notion of giving diamond rings to commemorate an engagement had never taken hold. In England and France, diamonds were still presumed to be a jewel for aristocrats rather than the masses. And in any case, Europe was on the verge of war, and there seemed little possibility of expanding diamond sales. This left the United States as the only real market for De Beers' diamonds.
Even though the "tradition" of giving diamond rings for engagements in America was barely fifty years old, it had survived the Depression. In fact, in 1938, some three quarters of all the cartel's diamonds were sold for engagement rings in the United States. Up until this point, however, American men tended to buy the smaller and poorer quality diamonds, averaging under $80 apiece, for their loved ones. Oppenheimer and the bankers believed that Americans could be persuaded to buy more expensive diamonds through an advertising campaign.
During their initial meeting, Oppenheimer suggested to Lauck that his agency prepare a plan for creating a new image for diamonds among Americans. He assured him that De Beers had not contacted any other American advertising agency with this proposal, and if the N. W. Ayer plan met with his father's approval, it would be the exclusive agents for the placement of the newspaper and radio advertisements in the United States. Moreover, Oppenheimer offered to underwrite the costs of the research necessary for developing the scheme. Lauck, envisioning a new and potentially lucrative account, instantly accepted the offer.
In their subsequent investigation into the American diamond market, N. W. Ayer's staff found that ever since the end of World War I in 1919, there had been a consistent decline in both the number and the quality of the diamonds sold in America. During this nineteen-year period, the total number of diamonds, measured in carats, had declined by 50 percent; while the price of the diamonds, measured in dollar value, had declined by nearly 100 percent. This suggested that well before the Depression, Americans had begun buying poorer quality and cheaper diamonds. They concluded, according to an Ayer memo, that the present depressed state of the market for diamonds was "the result of the economy, changes in social attitudes and the promotion of competitive luxuries."
Although it could do little about the state of the economy, N. W. Ayer suggested that through a well-orchestrated advertising and public relations campaign, it could significantly alter the "social attitudes" of the public at large and thereby channel American spending toward larger and more expensive diamonds instead of "competitive luxuries." Specifically, the Ayer study stressed the need to vitalize the association in the public's mind between diamonds and romance. Since "young men buy over 90% of all engagement rings," it would be crucial to inculcate in them the idea that diamonds were a gift of love: the larger and finer the diamond, the greater the expression of love. Similarly, young women had to be encouraged to view diamonds as an integral part of any romantic courtship. The study found that there was already an increasing number of marriages among middle-income wage-earners who were "the backbone of the diamond market," and that, if properly cultivated, this trend could provide fertile grounds for diamond sales in the future.
Since the Ayer plan to romanticize diamonds required subtly altering the public's picture of the way that a man courts a woman, the advertising agency strongly suggested exploiting the relatively new medium of motion pictures. "Motion pictures seldom include scenes showing the selection or purchase of an engagement ring to a girl," the Ayer proposal noted. "It would be our plan to contact scenario writers and directors and arrange for such scenes in suitable productions." Since movie idols were then paragons of romance for the mass audience, they would be given diamonds to use as their symbols of indestructible love.
In addition, the proposal suggested planting news stories and society photographs in selected magazines and newspapers that would reinforce the link between diamonds and romance. There would be stories about the size of diamonds that celebrities presented to their loved ones, and photographs that conspicuously focused on the glittering stone on the finger of a well-known woman. And there were to be radio programs where fashion designers talked about the trend towards diamonds."
The Ayer plan also envisioned using the British royal family to help foster the romantic allure of diamonds. It observed, "Since Great Britain has such an important interest in the diamond industry, the royal couple could be of tremendous assistance to this British industry by wearing diamonds rather than other jewels." Subsequently, Queen Elizabeth did go on a well-publicized trip to the South African diamond mines, and she accepted a diamond from Oppenheimer.
On April 6, 1939, H. T. Dickinson, a director of De Beers responsible for international diamond sales, arrived in New York on board the Queen Mary. At 4 PM that afternoon, he was in the offices of N. W. Ayer discussing the implementation of the advertising campaign. Initially, he found it difficult to believe that diamonds had steadily lost ground to other luxury goods in America, but after reviewing the data, he accepted the N. W. Ayer thesis: a new image for diamonds was needed. Within two months, De Beers authorized Ayer to begin its campaign.
The advertising agency wasted little time in approaching the film studios in Hollywood. In its 1940 report to De Beers, it noted, "A long series of conferences with Paramount officials, capped by your own efforts, succeeded in changing the title [of a film] from 'Diamonds Are Dangerous' to 'Adventures in Diamonds'." It then reported that in another film called Skylark, it had succeeded in inserting a "long scene" in dealing with the selection of a diamond clip and bracelet for the star Claudette Colbert; and that in the film, That Uncertain Feeling, Merle Oberon wore $40,000 worth of diamond Jewelry. On the basis of these initial results, N. W. Ayer strongly recommended that continued efforts be made to manipulate Hollywood films. It reasoned that Americans "have not been conditioned by their environment to diamond purchases. Aside from the engagement rings, they have no diamond tradition. But they are going to be influenced by ... what they see their favorite movie star wear."
To further advance the romantic image of diamonds, N. W. Ayer placed a series of lush four-colored advertisements about diamonds in the New Yorker and other magazines presumed to mold elite opinion. These advertisements featured reproductions of famous paintings by such respected artists as Picasso, Berman, Dali and Dufy, which were intended to convey the idea that diamonds were also unique works of art.
When the Second World War began in Europe, N. W. Ayer fed numerous stories to the press suggesting that the diamond market would not be adversely affected by these developments. Even though the war, in fact, virtually ended the gem diamond business, with mines being shut all over Africa and cutting centers in Europe being abandoned, the planted stories, which were widely circulated by the wire services, carried such optimistic titles as "Diamond, King of Gems, Reigns Supreme Despite War," "Diamond Supply Unhurt by War," "War Gives Impetus to Diamond Cutting," "Marriage Increases Indicated by Rise in Diamond Sales," and "How Diamonds Spark the Wings of War and Peace."
By 1941 the advertising agency reported to its client that it had already achieved impressive results in its campaign to alter the American public's perception of diamonds. Since its inception, the sale of diamonds had soared 55 percent in the United States, reversing the previous downward trend in retail sales. N. W. Ayer stated in the accompanying memorandum to De Beers "the entire structure of your diamond organization for the duration of the war rests upon the ultimate sale of diamonds to consumers in the United States. ... Your problem is to cultivate the desire to purchase diamonds for their own sake." The adver
tising agency saw no reason to be overly modest in summarizing its own contribution. It noted in the report that its campaign required "the conception of a new form of advertising which has been widely imitated ever since. There was no direct sale to be made. There was no brand name to be impressed on the public mind. There was simply an idea-the eternal emotional value surrounding the diamond." It further claimed that "a new type of art was devised . . . and a new color, diamond blue, was created and used in these campaigns. . . ."
As far as future campaigns were concerned, N. W. Ayer pointed out that paid advertisements themselves were not sufficient for solidifying the credibility of the diamond. "It is the responsibility of the publicity effort to gain access to the editorial and news columns of magazines and newspapers, and thereby become part of the publication itself," the report added. "In this manner, it carries the authority of a disinterested source and consequently creates interest among readers."
This technique of distributing its message disguised as a news story proved especially effective when it became necessary to foster the idea that diamonds were contributing to the war effort and buying gems amounted to an act of patriotism. During the war De Beers also called on N. W. Ayer to defuse the charge that it was an international cartel. A penciled memorandum from De Beers in 1944 dealing with its public relations notes: "Problem to convince American public that the Diamond Industry, though an admitted monopoly, operates fairly and in a manner that accords with American interests. This must be done in a way that will stand up under direct attack even from a government source." It was not until after the war ended, when millions of soldiers returned to civilian life, that N. W. Ayer received an expanded budget from De Beers to proceed with the next stage of its campaign to make diamonds part of the romantic consciousness of the American public. In Its 1947 strategy, the advertising agency strongly emphasized a psychological approach. "We are dealing with a problem in mass psychology. We seek to . . . strengthen the tradition of the diamond engagement ring-to make it a psychological necessity capable of competing successfully at the retail level with utility goods and services." It defined as its target audience "some 70 million people 15 years and over whose opinion we hope to influence in support of our objectives." Since the point of the exercise was to cultivate a sustainable image in the public mind, rather than merely increase short-term sales, the advertising agency cautioned that "the ordinary so-called 'hard-hitting' techniques are not for you, for they are the very methods that helped to cheapen the diamond in the opinion of the public during the years before our association."
The Rise and Fall of Diamonds Page 11