An Indian Summer in the United States
June 15, 06Freakonomics is the title of a best seller by “rogue economist” Steven D. Levitt who explores the hidden side of everything. Looking beyond conventional wisdom, he searches for linkages behind cause and effect. For example, 10 years ago, politicians and bureaucrats embraced as truth the unanimous claim by American researchers that the rate of teen homicides would more than double in the following years. President Bill Clinton was quoted in 1995 as saying, “We know we’ve got about six years to turn this juvenile crime scene around or our country is going to be living in chaos.” And then all of a sudden, instead of going up and up, juvenile crime began to continuously fall. It was entirely unanticipated, especially by the experts who had predicted the exact opposite. Professor Levitt looked at the profile of the juvenile delinquents of the 1990s and concluded that many of them were from single mothers, broken homes, or unfavorable economic backgrounds.
So why the drop in crime rate from 1995 and onward? Levitt relates it to the Supreme Court decision Roe vs. Wade, which legalized abortion. Suddenly, millions of kids that would have little hope for a decent life simply weren’t born – so they couldn’t become criminals.
That is why the juvenile crime rate went down, argues Levitt. Is that the sole explanation? I wouldn’t know. Does it make sense? Yes, it sounds logical, plausible, and even fascinating. Furthermore, it prompts one to think “outside of the box.”
Back to diamonds: Looking at the polished diamond imports in the
Indeed, the Indian market share in the
Increase Driven by Better Goods
“Ah, Americans are importing large amounts of junk,” one might say, but, no, that is not the case. Looking at polished imports of diamonds above half a carat, imports of these larger goods from
So going back to the “rogue economist” looking for the hidden cause of everything, we have a number of thoughts on the sudden Indian increase. Just like in the earlier example when a U.S. Supreme Court ruling changed the situation in the field, on January 1 of this year, something changed in the American market: FinCEN’s Anti-Money Laundering Jewelry Rule came into effect.
Since that date,
Why? Because traditionally, the Indian distribution system is different: Indians have 3000 Indian offices around the world of which 1250 are in the
There is an almost ironic incongruity here.
Skillfully Playing the Supplier-of-Choice Game
Of course, this isn’t the sole reason for the rise in market share. There is no magic. The Indian diamond industry can’t sell goods that it doesn’t have. And in recent years, it has been getting more and more of the larger goods. Actually, the Indian diamond industry has proven to be far more skillful in understanding the Supplier-of-Choice “game” than their colleagues in other centers.
When the first two-year supply contract was concluded between De Beers and Sightholders, hardly any Indian companies were taken off the list. The DTC indicated that this was because of the (then) ample availability of Indian goods and that Indian Sightholder reductions would wait for the second contract.
Under the terms of the Supplier-of-Choice, all Sightholders can apply for all goods. The Indian Sightholders were very astute and started to apply also for the better goods, which until then had not been allocated to them. They knew full well that the so-called Indian articles would end up in
So when looking to the American statistics of the first four months of this year, we see a happy coalescence of two unrelated events, which very much play into the Indians’ hands. On the one hand, the massive presence of offices in the
This may all partly seem like Freakonomics – though there is definitely a cause and effect relationship, but they are undoubtedly parts of a larger puzzle. So the Indian diamond industry enjoys an early Indian summer in the
Have a nice weekend.