(By Alan Cohen): Reflecting on the ongoing G7 sanctions on Russian diamonds and its expected impact on an already shaky diamond and jewellery market, I am reminded of an old episode of the podcast ‘Cautionary Tales’ by Tim Harford.
The episode dealt with the story of the Torrey Canyon disaster. For those of you too young to know about the event – it happened in 1967; – the Torrey Canyon was a Supermax Oil tanker of just under 300m (985 feet) long, that ran into the rocks just off the west coast of Cornwall, UK.
At the time she was the largest vessel ever to be wrecked. All the oil on board seeped into the Atlantic Ocean causing one of the biggest environmental catastrophes of the time. Effects of the oil spill, of 57 years ago, can still be found on the beaches of Cornwall.
Why does this remind me of the diamond business?
One of the main causes of the disaster was the inertia of the captain and crew of the Torrey Canyon. We, in the diamond business, regardless of the good intent, find ourselves on a similar disaster course, led by inertia and steered by our governments.
We have a storm coming, we must find a way to mitigate this situation for the good of the non-Russian diamond industry and not to its detriment.
Inertia is a problem for humans – we often have difficulty changing course. Psychologists who study accidents have a term for this inertia – it’s called “Plan Continuation Bias”. It is best known in the aviation business by pilots as “get-there- itis”. They form a plan and then are reluctant to change it, regardless of the consequences. And that seems to be the position we find ourselves in now!
The G7 should support a global solution. Any technology that is being made available to the EU, to register, certify and track rough diamonds and the subsequent polished diamonds produced from that rough, should be made available to ALL non-Russian producer countries, trading countries, manufacturing countries as well as consumer countries. This technology should allow legitimate and sovereign governments to certify the origin of their diamonds.
Also, artisanal and small-scale miners must have free access to the technology and should be able to send their rough into any cutting centre with a certified country of origin. The diamond trade is an important livelihood for millions in the artisanal trade and although artisanal mining is informal, it is legitimate and legal. Any restriction that is not accessible to this important sector of the industry will create room for exploitation and disproportionally impact the sector.
The process currently being considered by the G7 would force all diamonds to be sent through one G7 center (Belgium), the costs of shipping to Belgium will add a significant
cost to the price of the diamonds. Over and above the shipping back and forth (and its non-environmentally friendly aspect) there would be an extra charge for the inspection, certification and registration of the diamonds which would create a competitive disadvantage for non-Antwerp dealers. Moreover, this would not allow diamond producing, Sovereign African Governments to send their diamonds directly to the market of their choosing. It would also undermine legitimate local industry beneficiation.
There are so many other features of this legislation and its implementation that I question, I see them as an existential threat to a large number of companies: I think there are anti-trust issues (leading to a monopoly), Trade Restriction issues (WTO) and data storage and the protection of private information uploaded to the blockchain (GDPR). There is no mention on what happens to existing stock and second-hand goods.
In the field of aerospace, it has been recognised as a significant causal factor in accidents, with a 2004 NASA study finding that in 9 out of the 19 accidents studied, aircrew exhibited this behavioural bias.
This is a hazard for ships’ captains or aircraft pilots who may stick to a planned course even when it is leading to fatal disaster and they should abort instead.
There are two predominant factors that characterise the bias. The first is an overly optimistic estimate of probability of success, possibly to reduce cognitive dissonance having made a decision. The second is that of personal responsibility: when you are personally accountable, it is difficult for you to admit that you were wrong.
Alan Cohen is the President of London Diamond Bourse