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Home > Israeli Diamond Industry > History > The First Decade of the State

Israeli Diamond History - The first Decade of the State

The First Decade of the State of Israel

By Shira Ami

The history of the Israel diamond industry until the end of the first decade of the independent state can be divided into three periods: the period under the British Mandate, the period after declaration of the state, and between them, the years 1947-1950 – a time of crisis in the world diamond industry, and of transition from a war-time to a peace economy in Israel.

When the Second World War ended, world demand for polished diamonds increased considerably, for two main reasons: first, the economic prosperity in the post-war industrialized nations and second, the growing awareness of the diamond, due to De Beers’ massive publicity and information campaigns.

Once the middle and working classes had acquired cars and television sets, they began buying polished diamonds, as well. This socioeconomic phenomenon led to significant changes in the world diamond trade. Sales of large diamonds became less significant and the volume of sales of the type manufactured mainly in Israel increased. Further encouragement of prospective buyers came from the growing confidence that diamond purchases were a good investment for the future.

The First Structural Change

The diamond industry recovered from the War of Independence very slowly. Actually, because of the crisis in the industry and the transition to a war-time economy during 1947 and 1948, many felt that the Israel diamond industry had come to an end.

However, it turned out that the know-how, initiative and love for the profession had penetrated deep into the hearts of the Israeli workers. Skilled diamond workers were not put off by the economic slump; they decided to hold on. In fact, they took advantage of the lull in order to establish their position in the industry. Quite a few workers managed to purchase factories on easy terms and operated them on the basis of the know-how and experience they had acquired while working for wages. In the grim atmosphere of the time, one needed a great deal of courage, determination and energy to cope.

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Courtesy of the Government Press Office

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New immigrants, apprentices, learning diamond polishing on site in Eilat – March 1957

The industry began to regain its strength in 1950, with the first signs of a new era. The factories that received direct supply from the CSO reorganized, with the owners supervising the work; they developed according to the management skills of their owners.

The Emergence of Groups

At the same time, veteran workers, some of them professional managers, began entering the industry as managers of groups, which initially worked on a piecework basis. They set up small factories, employing a small number of workers. The groups were housed in vacant factory buildings, in attics and in rented rooms. Members of the groups put many hours into polishing, simply to maintain independence and promote their plants, even without profit. In time, they became owners of small and medium-sized factories and began buying and processing their own rough diamonds.

The main difference between the new small factories and the medium-sized and large ones was the method of management and payment of wages to workers. The group owners managed all the professional and administrative work themselves, in order to economize on expenses, so that they could compete with the factories that received rough supply from the CSO. Indeed, their operational costs were relatively low.

At this stage, some of the pioneers of the Israel diamond industry emerged – people who risked a great deal in order to revive the industry, which was virtually in ruins. These people established the industry on firm, stable ground, and they faced new challenges: the competition of the Belgian industry and the search for and development of new export markets for the polished goods.

The Number of Factories

The addition of the small groups helped to quadruple the number of plants in the industry in the first 10 years of the existence of the state.

In 1948 there were 30 factories in Israel, employing about 800 people. Ten years later, there were 134 factories in Israel:

Factories

Workers

44

1-10

20

11-20

20

20-30

28

30-50

6

50-70

5

more than 90

In the development areas (outlying regions, settled mainly by new immigrants, which required special government aid), there were 11 more factories.

Rough Imports

From 1948 to 1956, De Beers sold about 600 million pounds sterling of rough diamonds throughout the world. In 1956, it sold rough for 74.5 million pounds sterling. These figures give us a perspective on Israel’s position in De Beers’ marketing network, due to the company’s previous commitments to Belgium: the value of rough diamonds imported to the Israel diamond industry in the first decade of the existence of the state tripled – from about 9 million dollars per year in the first years of the state, to 28.8 million dollars in 1957.

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Teddy Brauner - Courtesy of the Government Press Office

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A Holocaust survivor working as a diamond polisher at the Tel Aviv Diamond Exchange in 1950

In fact, after the Second World War, De Beers’ Central Selling Organization limited its allotments to Israel to 5-8 million dollars a year. The more the industry developed, the lower the proportional direct supply of rough, until it reached a low of 16.4% of all rough supplied in 1959. The Israeli diamantaires were forced to buy rough diamonds second- and third-hand, and to pay considerable fees to the middlemen.

The government of Israel, which recognized the importance of rough diamonds to the industry, worked on two levels. First, they sought mines that would serve as sources of rough diamonds; second, they conducted negotiations with the CSO to change its policy toward Israel. The government made contact, through a special company set up for this purpose, with several sources of rough diamonds, and purchased rough from them directly. At the same time, a delegation traveled to London, and succeeded in achieving renewal of rough supplies to Israel.

Concerted efforts during the 1950s brought about a change in the position of the CSO and a regular supply of rough diamonds to Israel. The changes began in 1961, when the policy of De Beers’ CSO was significantly altered.

In 1967 the CSO supplied Israel with 52.6% of all gross imports of rough diamonds to Israel, at a value of 72.6 million dollars.

Cutting Melees

The Israel diamond industry worked mainly on melees, which requires less labor and machinery. The melees were supplied in an original box by the Central Selling Organisation in London. The Israeli factories reached a high level of expertise in working with this type of rough. Utilization rates were high, while labor costs were relatively low. Thus the Israeli manufacturers were able to sell the polished at low prices, which the Belgians could not match. In the end, the Belgians themselves began buying the polished in increasing quantity, and mixing it with their own goods, which were sold in Europe and the United States. Within a short time, Belgium became Europe’s largest buyer of Israeli polished melees, and Israel became an exclusive supplier of this type of diamond.

Thus the Israel diamond industry worked for some time almost exclusively on melees, and the CSO did not supply it with any other type of goods. This rough was expensive and its added value was low, leading to a diminishing profit margin. In low seasons, large stocks of diamonds accumulated in the banks. As a result, the pressure to sell the polished goods increased, leading to a drop in prices and subsequent losses.

It was impossible to slow down the pace of manufacturing for fear that workers would leave the industry. It was impossible to work less expensive rough, which would require less investment and promise higher added value, for lack of professional know-how. It was only in the mid-1960s that the Israel diamond industry began to feel some relief in this respect.

Government Policy

From the very beginning, the government demonstrated a very liberal attitude toward the diamond industry. The government understood that the diamond industry was a significant source of foreign currency, and was willing to deviate from the general policy in order to help the industry, by giving it the freedom of action so essential to its success. The second diamond controller, Dr. Yaakov Arnon, member of a long-standing diamond family from Holland, understood that strict regulations on currency would eliminate any chance of developing the industry. He introduced the method of allocating foreign currency to diamantaires according to added value. Dr. Arnon also inspired a special approach among the government officials who dealt with the diamond industry. It is thanks to him that the diamantaires were spared unnecessary bureaucracy and were able to conduct their business comfortably.

Another person who played a significant role in forming the supportive government attitude toward the diamond industry was the minister of industry and trade and later minister of finance – Pinhas Sapir. Upon his taking office as industry and trade minister in 1955, a dramatic change took place. He bombarded the diamond industry with demands for expansion and hastened to translate his wishes into deeds: restrictions on the import of rough were eased and import licenses were issued to all diamantaires who were prepared to expand their manufacturing and export operations. The highlight of his efforts was the agreement that he signed with CSO president, Sir Philip Oppenheimer, regarding monthly allocation of melees for an amount of 1 million pounds sterling. Pinhas Sapir cared deeply about all of Israel’s industries, but he made the diamond industry his special favorite. He kept a close watch on its progress, recording updated details in his famous “little black book.”

Bank Policy

On the subject of banks and the diamond industry, the first names that come to mind are Israel’s first diamond controller, Albert Ehrenfeld, and the deputy director of Bank Igud, Eliezer Lerner. They were the first ones, as early as the 1940s, to express their faith in the potential of the diamond industry and provide funding.

Eliezer Lerner recorded in his memoirs that when there were no regular air routes to the outside world, the bank organized the shipment of imported rough diamonds and exported polished diamonds in chartered planes, and made special arrangements for insurance: “We had to teach pilots to fill out and issue bills of lading. Most important, we had to arrange security service during transportation of the diamonds from the airport in Haifa to the bank’s offices in Tel Aviv and back."

Labor Relations

In the early years of the industry there was no collective labor agreement. Working conditions and pay were set in each factory separately, through direct negotiations. The secretary of the national diamond workers union, Arie Gradstein, recalls that the turning point came in 1949. Several workers’ committees in Tel Aviv organized an action committee and asked the national labor federation to enter the scene. Those who initiated the idea were joined by a group of labor committees from Netanya. As a result of the request, the labor federation appointed a national coordinator to deal with the diamond industry. Later on, two parallel work agreements were signed, one for Netanya and one for Tel Aviv. Since then, the labor federation has represented the diamond industry, acting to better the social benefits of the industry’s employees.

Source: HaYahalom - State of Israel Jubilee edition

 

By: Shira Ami
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