The Ethical Evolution of the Modern Diamond Industry
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From Ultimate Rent Seeker to Positive-Sum Stakeholder? The Ethical Evolution of the Modern Diamond Industry Yolande Kyngdon BA International Studies (First Class Honours) A thesis submitted for the fulfillment of the degree of Doctor of Philosophy Faculty of Arts and Social Sciences University of New South Wales January 2014 Abstract This thesis considers the moral development of the modern diamond industry from its birth in the final third of the nineteenth century up to the present day. The discussion is framed within a tripartite theoretical grid, with each of the theory’s three elements styled as an ‘arrow’. The first and second arrows are the theories of rent seeking and collective action, respectively, which finely explicate the logic of the specific behaviours and strategies adopted by the diamond industry’s leadership through time. The third arrow is the moral systems theory, which allows for an impartial moral assessment of key industry practices at each phase in its evolution. The study illustrates that the ultimate goal of the industry’s most prominent leaders was to extract optimised rents through the creation and maintenance of comprehensive market distortions. These goals, and the behaviours associated with them, were in practical terms perpetual, being passed down from one generation of industry leadership—embodied in the Chairmanship of the industry’s dominant firm, De Beers—to the next. These actions inflicted aggregate harm on society. The business strategies of De Beers’ leadership consistently breached moral rules—violations that are classifiable as unjustified, and thus immoral. Assessing the moral rule violations witnessed during the respective tenures of De Beers’ most prominent leaders forms the basis of the analysis of the industry’s moral development through time. The conclusion is that the diamond industry’s moral status deteriorated in the transition from Cecil Rhodes’ leadership to that of Ernest Oppenheimer; and again in the leadership transition from Ernest Oppenheimer to his son Harry. Only in the Julian Ogilvy-Thompson and Nicky Oppenheimer era, and against the efforts of these men who remained intent on realising the ultimate goal of their predecessors, was the century-long trend towards industry-wide moral deterioration stemmed. From the late 1990s forward, a number of factors endogenous and exogenous to the industry worked directly and indirectly to improve its moral standing. However, this is a relative judgement, not an absolute one. More needs to be done if the diamond industry is to continue on its promising recent path towards a positive moral status. i Declaration of Originality I hereby declare that this submission is my own work and to the best of my knowledge it contains no materials previously published or written by another person, or substantial proportions of material which have been accepted for the award of any other degree or diploma at UNSW or any other educational institution, except where due acknowledgement is made in the thesis. Any contribution made to the research by others, with whom I have worked at UNSW or elsewhere, is explicitly acknowledged in the thesis. I also declare that the intellectual content of this thesis is the product of my own work, except to the extent that assistance from others in the project's design and conception or in style, presentation and linguistic expression is acknowledged. Signed....................................... Date.......................................... ii Acknowledgements I would like to sincerely thank the librarians at the Bodleian Library of Commonwealth and African Studies at Rhodes House for the excellent assistance they provided me in finding (and sometimes deciphering) the relevant contents of the Rhodes archives, particularly Cecil Rhodes’ personal letters. It was a phenomenal experience to sit in Rhodes House and read the business correspondence of a man who held such incredible power in the diamond industry. My time at Rhodes House was more productive and enjoyable because of the work of its patient and knowledgeable librarians. Sincere thanks also go to the countless men and women in the diamond industry who took the time to answer the questions and clarifications I sought about the fascinating world in which they operate. I learned something new with each discussion, whether over the phone, via email, or in person, and I hope that this thesis will also serve to expand their knowledge of the diamond industry and the people and events that have informed its development. I would like to extend extra special thanks to my wonderful husband, Huw McKay, for his incredible support throughout the entire PhD process. Whether listening, at all hours, to my fleshing-out of a new idea, advising on the best economics books to read, or editing drafts, Huw was eternally patient and genuinely interested in my research, which made the process that much more gratifying. And finally, special thanks to one of the most talented women I know, Alison O’Connor, for taking the time to read the final draft and provide insightful feedback. iii Contents Abstract ....................................................................................................................................... i Declaration of Originality ........................................................................................................ ii Acknowledgements ................................................................................................................... iii Contents .................................................................................................................................... iv List of Figures ......................................................................................................................... viii List of Tables .......................................................................................................................... viii List of Abbreviations ............................................................................................................... ix Chapter 1: Introduction ........................................................................................................... 1 Background and Context to this Study .................................................................................... 1 Scope, Methodology, and Definitions ..................................................................................... 2 This Study’s Key Contributions .............................................................................................. 8 Chapter Overview .................................................................................................................. 11 Conclusion ............................................................................................................................. 14 Chapter 2: The Theory of Rent Seeking and the Logic of Collective Action .................... 15 Introduction ........................................................................................................................... 15 Arrow Number One: The Theory of Rent Seeking ............................................................... 15 The Costs of Rent Seeking ................................................................................................ 19 Monopoly and Cartel Rent Seekers ................................................................................... 21 The Morality of Rent Seeking ........................................................................................... 22 This Study’s Definition of Rent Seeking ........................................................................... 26 Arrow Number Two: The Logic of Collective Action: ......................................................... 27 Latent or Large Groups ...................................................................................................... 29 Privileged or Small Groups ............................................................................................... 29 Realising a Collective Good .............................................................................................. 30 Intermediate or Oligopolistic Groups ................................................................................ 31 Selective Incentives and the Optimisation of the Collective Good ................................... 33 The Morality of Collective Action .................................................................................... 35 Conclusion ............................................................................................................................. 36 Chapter 3: Moral Systems Theory ........................................................................................ 37 Introduction ........................................................................................................................... 37 The Moral System ................................................................................................................. 37 The Inclusivity of the Moral System ................................................................................. 41 The Moral Rules ................................................................................................................ 42 The First Group .............................................................................................................. 42 The Second Group .........................................................................................................