During crisis periods, governments in diamond cutting centers, (including in the so-called “beneficiation” countries,) contemplate their options when assisting manufacturers on the micro/macro levels. Presently, government loan guarantees are being considered by a number of centers. Now question rises, how does one structure a loan program and how do governments minimize the risks should they actually have to cover payment for their guarantees. Of course all this depends if successful diamond plants can be established using guaranteed government loans as part of the beneficiation efforts.

Sometimes the best answers can be found using precedent. One of the more intriguing diamond industry loan guarantee programs has been extensively debated in the British government. The Cabinet, led by the active participation of the Prime Minister, repeatedly discussed the need to secure over 1,000 jobs in the British diamond sector.

On July 20, the Minister of Labor, referring to a specific diamond factory needing a bailout, advised the Cabinet in writing that “a government guarantee, not exceeding £150,000, should be given on certain conditions and that legislation should be introduced for the purpose - if the guarantee could not be given without legislation.” He added that “the Treasury decided that legislation was necessary, and accordingly, a bill has been drafted. …. As very little time is available, I propose to introduce the bill on July 23^rd, unless I hear before that date that any of my colleagues object.”

And on July 23, the British Parliament was presented with a draft National Diamond Factory (Guarantee Agreement) Act, 1923.  That was today, exactly 76 years ago! How little have things changed (£150,000 in 1923 terms has an equivalent purchasing power equal to £1.89 million today).

The proposed Act of Parliament was aimed at rescuing the National Diamond Factory (Bernard Oppenheimer) Ltd., a large diamond plant located on Lewis and Coombe roads,  Brighton, , not far from London. Sir Bernard Oppenheimer, of course was a brother of Ernest Oppenheimer, the grandfather of present De Beers Chairman Nicky Oppenheimer.

Sir Bernard Oppenheimer established the factory in 1918, paid for by Oppenheimer himself and by the diamond brokerage Lewis & Marks, where he was the managing director. In 1920, the National Diamond Factory opened branches in Cambridge, Wrexham and Fort William. By 1921, the diamond plant employed around 2,000 workers.

The diamond factory struggled and never earned a single penny. In 1921 Oppenheimer passed away, and soon after the company was placed into liquidation. At the very last moment several Dutch buyers were found – who promised to purchase and operate the factory based on assurances of massive British government assistance. In 1922-1924, England was governed by a Conservative Government, with Stanley Baldwin serving as Prime Minister. The House of Commons debated the bill on July 24, 1923, and the tenor of the parliamentary deliberations could have taken place today in many countries. The stormy debate lasted through the night, well after 2 AM.

Labor Minister, Sir Anderson Montague-Barlow told his fellow parliamentarians, as a background, that “Sir Bernard Oppenheimer and his partners, Lewis and Marks, during the War [World War I] started this factory. They founded the factory for two purposes. First of all, that it might be of assistance to the disabled ex-service men of the country and secondly, that we might have established in this country a new and a useful industry.” (I must add that Oppenheimer had launched a scheme to help disabled veterans – leading him to be knighted in 1921.)

“Buildings were constructed and are very elaborate,” continued the minister. “They are fitted with the most modern appliances for the purpose of carrying on this work of diamond cutting. Not only that, they have convenience and opportunities for dealing with the disabilities of ex-service men if they require treatment. The premises were erected at a cost of £300,000, and for the purpose of the present negotiations they have been valued at £70,000.” The minister did not mention that the premises did not only include the factory, but also two apartments, an electricity sub-station, machinery plant and a medical ward. The additional premises were all mortgaged.

“The disabled men who passed into this factory,” said the minister, “were selected from various parts of the country. A large number of men were trained or passed through the preliminary training, some 1,200 in all, and eventually the factory was operating with some 200 to 250 men. There is room for a great many more, up to about a thousand,” he promised.

“Managers and instructors were obtained from Holland, and the idea was to establish (…) a permanent form of employment for these men. Unfortunately in the period of 1920–22 there was a very severe depression in the diamond industry, as there was in other industries, and the factory had to close down,” explained the minister.

"Diamond Manufacturing in England Cannot be Profitable”

As in any beneficiation country, British parliamentarians were skeptical and wondered whether the newly trained workers would able to produce efficiently on an internationally competitive basis. In 1923, Amsterdam and Antwerp were the main cutting centers, though South Africa started a few years earlier. The minister responded “There is no doubt the man made good. This was proved by two facts. The diamonds they had cut were selling on a basis of equality in London and New York with those cut in Amsterdam. Further, a number of the men [18 in fact] trained at Brighton were able to secure work in Amsterdam. … It is a question, fundamentally, of what should be done with those men who have been trained."

“You have some 250 ex-service men who have been trained in a lucrative employment and who are now thrown out of work,” the minister went on.

Then Sir Anderson Montague-Barlow gave the reasons leading to the government decision: (1) if the factory were to be closed down the training of 250 men already taught would be lost; (2) the men would need to be trained for a different occupation, costing around £40,000, and even when the men were trained there would then be no guarantee of employment; and (3) there was the point of securing the men with employment and at the same time establishing a new industry in the UK.

A member of the Labor opposition, Mr. Lyle-Samuel, took strong issue with Minister Barlow, accusing him of using the employment of disabled servicemen as an excuse to prop up a losing proposition. “This Guarantee is an expense to the taxpayer which was not commensurate with the benefits to be derived. The diamond industry in this country has not been one which ever was or can be on a profitable basis. One may as well face the facts. In other countries it is profitable to have certain industries, and this particular industry belongs to Amsterdam, for the simple reason that the skill and fine margin of cost which is necessary for the production of diamonds enables it to be produced nowhere else at a price to be sold successfully in the market,” argued Lyle-Samuel.

Another Member of Parliament, Mr. A. Hopkinson, argued “the real question was, whether the slump in the diamond market was temporary or likely to be permanent.” Lyle-Samuel replied “I really do not think that is the question at all. If the diamond market should recover, it is still true that the records of the company owning the factory at Brighton show that Amsterdam will undersell and undercut us every time. Two hundred men alone are involved and £150,000 of public money — not the whole of it, I agree, but there is a guarantee of £150,000 — is being risked in regard to 200 men, which works out at £750 per head.… If the Treasury wishes, for the sake of these 200 men, to give a capital sum of £750 each, they can do so and bring complete happiness into their lives by thus assuring them a certain sum every year and a comfortable sum to leave to their dependants.”

Lyle-Samuel went on, “We would then have the government free from this interference with trade, trade which is not on a commercial basis, trade which they have no Ministers or officials to conduct, trade which they can give us no evidence will be a success. This large sum of money is the last —perhaps it would be too optimistic to say the last — the latest instance of a contribution from our national resources to the many millions spent similarly, the record of which in our history is deplorable.”

Will the Industry Recover From the Crisis?

Once again, the point was raised about the expected crisis length in the diamond industry. One British parliamentarian asserted, “Everything in this case depends on one thing, whether this diamond trade is undergoing a temporary slump or whether the slump will continue, as it probably will, for generations. The slump is not as bad as it was in 1922, but is there any reason whatsoever to suppose that the present slightly better condition of the diamond trade is going to be anything better than ephemeral and likely to continue?”

He continued, “As many Honorable Members know most of the diamond mines were shut down at Kimberley and the former German South-West African mines. Surely, having regard to the present state of Europe and the world generally, it is perfectly futile to come to us and say that the diamond industry is going to improve so enormously that a firm, which from its inception has had very heavy losses indeed, is now going to become a paying concern.”

Montague Barlow went on to explain the deal; “Messrs. Lewis and Marks are to provide the premises, plant, etc., free of all encumbrances, and a sum of £100,000 — £50,000 in cash forthwith and £50,000 when called upon, and guaranteed meanwhile by a bank acceptable to the Treasury. The Government is to guarantee a sum of £150,000, which is to be a first charge upon the assets of the company, buildings, etc. The directors are to consist of three persons of distinction, Earl Haig, Lord Chichester and Sir W. Gentle; two directors, who will be business men, are to be appointed by the Government and two directors are to be appointed by Messrs. Lewis and Marks.”

A Member of Parliament then asked about the securities for the government guarantee.

“There is the first charge on the building. It is provided that the whole of the £100,000 is working capital and none of it is available for acquiring the premises of the new company. There is a special arrangement for a continuous audit which will secure control. Not more than 50 per cent of the profit can be paid out as dividends, the other 50 per cent going to the reserve fund, and if the liquid assets, as defined in the agreement, fall below £200,000, or a loss is shown in any one year of £50,000, the Government can then set the terms of the agreement in motion, in fact, foreclose and take the premises over” described the minister.

Then one parliamentarian asked, “Is there any reason to suppose that any profit of any sort will be made on the present transaction? Who are the gentlemen who are to have this large sum of money? We know Sir Bernard Oppenheimer was a gentleman of strong philanthropic energy, and he tried to make a success of it. It was very largely the failure of this great scheme of his that actually accelerated his death. But who are Messrs. Lewis and Marks? Is their record the same as that of Sir Bernard Oppenheimer? Have they shown throughout their lives the high degree of public spirit and desire to benefit their fellow men? I think these things might very well be inquired into and that opinion might be got, not only from the Trade Facilities Committee, but from the city and elsewhere. I hope the taxpayers' money will be protected from wild-cat schemes developed by semi-Socialistic Ministers in this House.”

Assisting Diamantaires: Not a Popular Cause

“Of all the fantastic schemes produced from the Treasury Bench this is really the reduction ad absurdum of Governmental interference with business,” derided one parliamentarian. “This is the least businesslike and most foolish proposition we have heard. This £150,000 is the latest attack on our national resources. If this is a business proposition we are considering, why was the factory never a success when there was a boom in diamonds and when diamonds were 300 per cent, even 500 or 600 per cent higher in price. The fact is that there was not even the capacity to take advantage of it. Now when the slump has come and Amsterdam is able to cut cheaper than ever and their prices are cheaper than ever, the British Government is willing to stand in and risk £150,000 of the taxpayers' money in an enterprise which failed from the beginning when directed by men on business principles,” he concluded.

When governments contemplate assisting value-creating manufacturing sectors, it shouldn’t make much difference whether it involves automobiles, shoes, air-conditioners or diamonds. But, because of the nature of the product, it apparently does make a difference. British parliamentarians failed to understand why the private sector could not find the solutions – if, indeed, the business was good.

Said one parliamentarian, “Lewis and Marks are one of the leading firms in the world. Does anyone suggest that they are in such indigent circumstances, or so baffled and harassed by their bankers, that they could not raise any resources necessary for this purpose? If this were a business and a business proposition the proposal would have come from Messrs. Lewis and Marks on their own to purchase the factory and run a profitable business. They know it is not going to be a profitable business and the right hon. Member knows it…”

Guarantees: A Story without a Happy End

In our research at the British National Archives in Kent we found a another protocol of a British cabinet meeting dated August 2, 1923, where the minister of labor informed the ministers that the National Diamond Factory (Guarantee Agreement) Act, 1923 was met with considerable opposition in Parliament and, therefore he did not proceed with the bill.

The Cabinet had to decide would they would proceed and push the bill or not. A decision was of some urgency, as Messrs Lewis & Marks were employing ex-servicemen in the belief that the bill would proceed. The Cabinet agreed by a majority that the National Diamond Factory (Guarantee Agreement) Bill should proceed in the Autumn. There is no further record that the bill ever passed.

The only other relevant document are the minutes of a British cabinet session where the ministers wonder if the government gave a loan guarantee to a factory, with what certainty could the government ascertain that the factory would indeed have access to rough supplies.

Thus His Majesty’s government instructed the minister of labor to obtain “further information on whether it could be possible to arrange with the Rough Diamond Syndicate for a regular supply of rough diamonds; or that a certain number of orders for the cutting of diamonds should in future be guaranteed to the factory.” Indeed, assurances for rough supplies were provided.

Regardless, in 1924 the National Diamond Factory closed down. Apparently, during World War II, when many Dutch and Belgian diamantaires fled to England, it was briefly resurrected. Today, it is nice to walk around Brighton. North of Bear Road, the area sometimes known as East Preston since it formed the easternmost part of that parish, was developed from the early 1900s and many of the road names have Boer War connections. It was a favorite hangout area for South Africans.

The lower part of Coombe Road is still dominated by two large factories on either side of the road where Sir Bernard Oppenheimer had built the National Diamond Factory. The southern building was taken over by Allen West and Schweppes in 1927 and then by CVA Tools. The impressive factory located to the north, was also built in 1918 as another diamond factory but is now the home of Dentsply, one of Europe's largest dentures teeth manufacturers.

Quite a story to chew on over the weekend.