How - Dov Seidman [98]
For centuries, stretching back into ancient times before the advent of regulated markets, whole economies organized and governed themselves based on trust and reputation. Personal affiliation, whether familial or with a foundation in the same religious or social group, formed the backbone of enterprise. Within these closed and semiclosed circles, word of misbehavior spread quickly. Those who cheated or betrayed a trust ran the very real risk of being permanently ostracized from their families, faith, and communities, their reputations—and thus their ability to transact business—destroyed. Though we tend to think of these sorts of business communities as feudal in nature, or existing today only where conditions of poverty or deprivation necessitate them, in fact this form of self-regulation exists to this day in the diamond trade, one of the richest economic markets known to man.
Over the centuries, Sephardic Jews, who after the Spanish Inquisition spread throughout Europe, where they were barred from most forms of economic activity save for moneylending, came to dominate the diamond trade. Diamonds had three things going for them that made them attractive to a transient community: They were highly valuable, universally desired, and easily hidden and transported on your person. Anywhere Jews were forced to move, they could take fortunes in diamonds with them and easily set up shop. Eventually, the “diamantaires” found their way to Antwerp, where they were welcome. Except for the relatively recent expansion to centers in London, Tel Aviv, and New York City, Antwerp has remained the diamond center of the world for 500 years.
Since diamond trade has always existed outside the bounds of traditional business, trust and reputation governed what contracts and law would not. From its inception, all deals were verbal and binding, sealed with a handshake and a proclamation of “Mazel!” Countless fortunes’ worth of diamonds routinely exchanged hands on nothing more.
Diamonds today trade largely as they did in the fourteenth century. Your word is still as good as a legal contract and signals that the agreed-upon price for the agreed-upon stones is final and cannot be altered. While diamond cutters may rely on computers and lasers to help them shape the stones, the trade itself depends on each dealer’s reputation and honesty, not on information technology and modern business practices. Dealers store diamonds in each other’s safes, entrusting packages of glittering rocks without a contract, inventory, or appraisal, and ship stones to dealers who may simply order a number of carats at a certain grade, buying them sight unseen.
Traditionally, the only entry to this close-knit world came through relationships and reputation, but even the diamond trade has not been immune to the forces of globalization. In recent years, the Antwerp marketplace—where about 90 percent of the world’s uncut diamonds and half of its polished diamonds are sold each year—adapted to a large influx of South Asian diamantaires from the Gujarat region of India. 1 Although marriage and faith (mostly Jain, an ancient ascetic practice) bind the majority of these newcomers, the Indians have been quick to assimilate. Many have learned Yiddish and Hebrew, they close deals with the traditional “mazel,” and they routinely serve kosher food at social gatherings.
Two tightly knit groups—as different in custom, culture, and practice as one could imagine—deal in billions of dollars’ worth of small, easily transported items each year, stones that to the naked eye almost all look the same. Their real currency, however, is trust and trust’s sustaining by-product: reputation.
Think how great your advantage would be if you could close every deal with a handshake. While your competitors