Alan Paton called him 'one of the great men of the mines.' While a 1951 Time Magazine article takes it further: 'The world's king of diamonds and its prime minister of gold.' The same article goes on to call him, 'the last and greatest of South Africa's Randlords.' But where does the hubris, hype and flattery end and the legend of Sir Ernest begin? The story of Ernest Oppenheimer's success is, in essence, the story of how one man managed to secure and maintain, what many refer to grudgingly as 'the greatest modern monopoly' on the planet.
Now let's face it, diamonds are not actually rare. Their value is 'managed' through clever, tight-fisted control of their production, manufacturing, pricing and retail. Before the discovery of diamonds in South Africa, the stones were highly prized and valued because of their extreme scarcity. Global supply would trickle from alluvial deposits in Brazil and India, and the stones were the greatly desired preserve of monarchs, noblemen, pirates and a few nouveau riche industrialists. The huge discoveries in Kimberley in 1865 meant that, very quickly, a vast number of stones flooded the market.
Cecil John Rhodes then arrived and started De Beers. Soon after he gained complete control of the Kimberley diamond fields, and thus about 95% of diamond production on the planet, he set about staunching the flow of diamonds onto the world market, to preserve the price and restore the balance of supply and demand. In this pursuit, Rhodes established a singular distribution channel through a syndicate of diamond brokerage firms in London, the year was 1893.
About three years later, Ernest Oppenheimer, a shy, hard working 16 year old, started his career as a junior clerk at Dunkelsbuhler and Co., one of the diamond brokerage firms in the syndicate. Born in 1880 in Friedberg Germany, the son of Edward Oppenheimer, a Jewish cigar merchant, who instilled in young Ernest, among other things, a life long appreciation for fine Havanas. Although pop sold cigars, Ernest was no stranger to the diamond industry. He had a total of two brothers and three cousins working in the London syndicate. His brother Louis was managing Dunkelsbuhler at the time.
According to author Edward Jay Epstein in his book The Diamond Invention : 'All these firms were interconnected by marriage and family ties, and all were owned by Jewish merchants. The fact that Jewish companies completely dominated the distribution of diamonds at the end of the nineteenth century was not particularly surprising. For a thousand years, diamonds had been almost entirely a Jewish business.'
And so Ernest Oppenheimer's apprenticeship in the diamond business began, as a lowly sorter of uncut diamonds. According to Theodore Gregory's 1962 biography Ernest Oppenheimer and the Economic Development of Southern Africa , Ernest took meticulous notes on everything he learnt at Dunkelsbuhler and read all the correspondence that came from Kimberley. In 1902 he got his wish and was dispatched to Kimberley to run Dunkelsbuhler's small purchasing operation. This position gave young Ernest an excellent vantage point over the entire South African diamond industry. As diamonds poured in from all the mines, he was able to grade and assess the production and profitability of each mine. He learnt about the distribution end of the diamond cartel by working alongside his cousin Frederick Hirschhorn who had become the syndicate's chief representative in Kimberley.
He was astute, enthusiastic and amiable and by 1908 was elected to the city council. He became mayor of Kimberley in 1912, at the age of 32.
As big Willy Shakespeare said, through Brutus in Julius Caesar :
'There is a tide in the affairs of men,
Which, taken at the flood, leads on to fortune;
Omitted, all the voyage of their life
Is bound in shallows and in miseries.'
In Sir Ernest's case the 'tide in the affairs of men' was World War 1. Having learnt all he could about the global diamond industry, he needed capital to finance his ambitions. And this came from gold. Epstein has it that a group of German investors wanted to invest in properties in the Transvaal, and Oppenheimer facilitated their deals for a small percentage and an option to purchase more. By 1914, the war was in full swing and the Germans' investment was looking shaky with Germany now the arch-enemy of the British Commonwealth. There was a real threat of the South African government appropriating these 'enemy assets'. Ernest took the initiative and found a solution for the German investors by setting up an international corporation, in which the German interest could be camouflaged alongside investments from other nations. Under this banner, he brought together all his other interests, options and percentages, and some others that had been acquired by his relatives.
By Epstein's account: ' To avoid drawing any unnecessary attention to the German investments, he proposed giving the corporation a name that would strongly suggest an "American connection," as Oppenheimer put it. After considering the name United South Africa Company, which would be abbreviated USA Company, and then the Afro-American Company, they finally decided on the Anglo-American Corporation, which sounded very much like the Anglo-American alliance that was then winning the war.'
By Anglo's own account the company was founded with authorised capital of £1 million from mainly British and American sources (one of them being JP Morgan) - and thus the name.
A 1951 Time Magazine article describes their first ventures in the Free State goldfields: 'While everybody else swarmed to the Central Rand, Oppenheimer tried his luck in the Far East Rand and struck it rich. Then he did it again 100 miles away where nobody thought there was any gold.'
Sir Ernest's next coup took a while longer to ripen, but was developing simultaneously to Anglo American's foundations in gold mining. As Epstein reports, before the war, Germany controlled Namibia as a colony. In 1908 diamonds were discovered in great abundance near Luderitz on the South West coast. The Germans, believing they had broken the 'British' De Beers monopoly rejoiced, fenced off the area and created the 'Sperrgebiet' or forbidden zone. Things looked bleak for the De Beers cartel until the outbreak of World War 1. Soon after South African troops seized the diamond beach, shut down the operations and appropriated the lot.
All's fair in love and war, ne?
Sir Ernest was now in a unique position. He had already visited and assessed these German diamond operations on behalf of the London syndicate in the years preceding the war. Choosing his moment, Sir Ernest approached the German owners of these diamond operations and offered them shares in Anglo-American in exchange for the Namibian holdings. Most had given up on their Namibian diamond adventure and jumped at Oppenheimer's offer.
He then relied on his friendship and close working relationship with Jan Smuts, South Africa's prime minister, to transfer the seized German properties to the Anglo-American corporation. By 1919 the transfer was finalized.
Anglo-American now owned a serious chunk of diamond producing real estate and De Beers had to have it in order to protect their diamond hegemony.
In the meantime Ernest Oppenheimer was knighted in 1921 and by 1924 he represented Kimberley in the national Parliament for General Jan Smuts' South Africa Party.
Taking a page out of Rhodes' book on corporate takeovers, he offered the Namibian operation to De Beers in exchange for a fat chunk of De Beers stock. He was immediately appointed to the board of directors of De Beers and started buying up shares of De Beers wherever he could find them. As did his family. By 1929 he was the chairman of De Beers and the most powerful man in diamonds. At this time America, was in the grips of the Great Depression. And all across Europe the squeeze was on. In this time of global financial insecurity, brave Sir Ernest consolidated his position and soon enough Anglo-American emerged as the controlling shareholder of De Beers.
Unlike Rhodes, however, Sir Ernest was not an empire builder nor a jingoist. But he was the right man to be at the helm of a company like De Beers, which by it's own charter is more of an autonomous, self-governing principality than a simple commercial interest. Rhodes made sure that De Beers was not confined to mining. As decreed by its charter, the company could build railroads, lay telegraph wires, annex territories, raise armies and install governments. Sir Ernest dreamt of a diamond empire, the first real multi-national company, with the size and scope of any government but an affiliation to none.
Theodore Gregory, in his biography on Oppenheimer quotes a letter sent from Ernest to brother Louis in which he explained his desire to make De Beers, 'the absolute controlling factor in the diamond world.'
According to Sir Ernest, 't he danger to the security of the diamond industry is not the discovery of a new rich diamond field, but the irrational exploitation of it.'
As the Great Depression took hold of the globe, De Beers came under huge pressure as the demand for diamonds dropped to almost nothing. The London syndicate was unable to sell what was being sent to them and quickly built up a large stockpile. They were also on the verge of bankruptcy and the temptation to offload these stones must have been tremendous. Oppenheimer realized the severity of the situation. He believed that to dump the stones onto the already depressed retail market, would be catastrophic. Depreciating the value of diamonds in both price and prestige. Oppenheimer soon aimed to take control of the syndicate. He was aided by the fact that he and his family owned shares in many of the syndicate's firms. Once control of distribution was achieved, Sir Ernest went home and one by one shut down all of De Beers' major diamond mines in South Africa and Namibia.
As Sir E was closing the gap on his monopoly, the Belgians and Portuguese burst onto the scene with discoveries of new rich diamond deposits in Congo and Angola. Even though there was no retail market for these stones, to stop them being dumped on the open market, Oppenheimer's London Syndicate, now known as the Diamond Corporation, bought the new production. Oppenheimer now faced a huge cash flow crisis. Eventually he issued De Beers bonds to finance the continued purchase of these diamonds. By 1937 and about 8 years of sleepless nights later, De Beers was on the verge of bankruptcy. They had a stockpile of diamonds that would take 20 years to clear. By Epstein's account taken from a United States government report, 'Oppenheimer was even considering dumping several tons of these diamonds into the North Sea to prevent them from reaching the market in the event that his company was forced into liquidation by his creditors.'
And then once again, a world war reversed the fortunes of De Beers and Ernie O; along with the invention of the diamond grinding wheel. This piece of machinery became a major innovation, streamlining the mass production of everything from automobiles to airplanes and other heavy machinery needed to wage war. And with the world preparing for war De Beers quickly became the chief provider of industrial diamonds.
Diamonds became an important strategic material. Roosevelt realized that if Europe and the flow of industrial diamonds ceased, the American war machine would grind to a halt. His contingency was to purchase at least 6.5 million carats from De Beers. De Beers were not so keen. By Epstein's account: 'Sir Ernest Oppenheimer personally opposed any transfer of diamonds to the United States. He argued that if the United States had its own stockpile, and the war suddenly ended, it might release the diamonds and undercut the entire world order that he had so laboriously constructed.'
In short the Americans pressurized the British, and the Brits leaned on De Beers who eventually relented and supplied one million carats, promising another 5.5 million carat stockpile in Canada, which they successfully procrastinated themselves out of, as the war swung in the Allies favour.
By the end of the war, De Beers made a mint selling gem diamonds in engagement rings to returning soldiers who had deferred their weddings for the war effort. By this time diamond engagement rings had rapidly become the symbol of choice for confirming one's commitment to marry.
Rewind to before the Second World War. In 1938 Sir Ernest had the good sense to send his son Harry (aged 28) to meet with an advertising agency in New York to reposition and promote diamonds in a more lasting, meaningful and profitable way. What followed is widely regarded as the most successful advertising campaign ever. De Beers advertising made diamond engagement rings became obligatory in the social process of marriage. In 1947 they coined the phrase 'Diamonds are Forever'. Which is still De Beers' their strapline today.
The most compelling thing about Sir Ernest is that he had the vision and the balls to think really big. Not satisfied with De Beers having sewn up almost all of the diamond mines in the world and having conquered the industrial processes from mining through manufacture, distribution and even managing the price, he sat back and thought, 'what next?'
And the next logical step, the holy grail of marketing, as it were, would be to exert some kind of 'control' over the public's desire for these things.
Ernest knew well what his grandson Nicky said at a Foreign Correspondent's Association lunch: 'A gemstone is the ultimate luxury product. It has no material use.'
But perhaps old Barney Barnato said it best when he chirped, ' Women are born every day, and men will always buy diamonds for women.'
As De Beers consolidated it's grip on the diamond industry, Anglo-American proved to be as adept in each of it's pursuits: gold, platinum, coal, uranium and copper and then a myriad of other industries ranging from high finance to paper to chemicals and mining equipment. Sir Ernest was sitting on top of a substantial empire. No doubt Anglo American was buoyed by the ascendancy Oppenheimer had achieved in the diamond industry, but also benefited from his hard nose for business, access to finance and overall understanding of the mining sector and markets. And despite Anglo American's success in mining gold, platinum, uranium, coal and copper - diamonds were always his primary interest and his first love.
'We love diamonds with a passion you cannot understand.' He was quoted in his 1957 Time Magazine obituary.
Sir Ernest was not simply a shrewd and visionary businessman who built a vast mining empire, and secured a global cartel that preserves the high price of diamonds. Along the way, he picked up as much praise as criticism. And sure, in establishing himself as 'the greatest Randlord' he got down and dirty, using all of the many powers at his disposal. Cartels don't come cheap. But that's business. That's advanced capitalism. It's an ugly world out there bubba, and the rich and powerful protect the privilege they've earned, or inherited. And despite all this, in an era long before corporations were expected to have any social responsibility Sir Ernest did enough philanthropy in his time to not be branded a huge, rich bastard by the masses. Universities from Stellenbosch to Oxford received new buildings, departments, fellowships and scholarships.
Sir Ernest insisted on providing adequate housing and medical care for all his mineworkers. A 1951 Time Magazine article claims that Sir Ernest: 'Believing that South Africa must wipe out the disgrace of its mining "kraals," where Bantu workers live like prisoners, he has led the spending of £70 million by mine operators to develop a model village to house 100,000 people at the new Free State mining center near Odendaalsrust.'
Today Anglo-American and De Beers are mining industry leaders for providing comprehensive health care services and educational opportunities for their employees.
During the forced removals of the 1950s Oppenheimer was instrumental in raising capital and building houses in Soweto for the resettlement of displaced people. In 1954 Sir Ernest loaned the city of Johannesburg R6 million to build houses, but also made sure that within 5 years they had built 24 000 units.
Many still argue that as the head of such large, and powerful companies such as Anglo American and De Beers, he could have done more. But let's face it, Sir Ernest was not Ghandi. But he wasn't Dick Cheney either.In the words of the old man, which have become something of a corporate mantra at Anglo and De Beers: 'The aims of this group have been - and will remain - to earn profits, but to earn them in such a way as to make a real and permanent contribution to the well-being of the people and to the development of Southern Africa.'