A few years back, many people in the diamond industry worried that most of New York?s diamond business would go the way of the Automat and the 10-cent subway ride. Profits were sinking, De Beers was regularly skipping New York?s sights, and factories were closing. Most New York dealers were middlemen, and middlemen didn?t seem to have a future in the streamlined global industry that was rapidly emerging. The outlook was so gloomy that when price-sheet publisher Martin Rapaport went to a Jewelers Club luncheon and predicted that the diamond industry would lose half its members within a year, no one doubted it was true.

But a funny thing happened on the way to the shakeout: The Far East economy spun into a depression. And while the ?Asian flu? hurt many New York dealers and manufacturers, in some ways it helped. With the Far East dead, the American economy became all-important, and all of a sudden the Big Apple became the gateway to the world?s healthiest consumer market. Overseas companies fled Asia and flocked here?sometimes temporarily stealing a customer or two by offering generous terms and prices.

But in the end, the veterans prevailed. New York dealers may be middlemen, but they?re exceptionally knowledgeable middlemen. And in the demanding, often-perilous American market, a little knowledge goes a long way?as evidenced by the spectacular failure of Lorenzi, an Israeli manufacturer, whose bankruptcy is blamed in part on over-generous credit to U.S. customers. In addition, many jewelers decided that, while the overseas dealers may offer a good price on a stone or two, they were better off relying on long-standing suppliers who would be willing to help them in a pinch.

At around the same time, De Beers took a second look at the New York industry?and liked what it saw, especially the financial strength. While other centers had problems with bankruptcies and local governments, New York weathered the bad times of the last few years without a major collapse (although there were some minor ones). In addition, the New York industry began making its case more aggressively than before. When the Diamond Industry Steering Committee met with De Beers, industry leaders didn?t wait for the familiar reassurances but came armed with carefully reasoned arguments why De Beers should support New York.

Concern over manufacturing. The upshot of all this is that today, the New York diamond industry is healthier than it?s been in years. It lost only one (inactive) sightholder when De Beers dropped 31 last year?and a new manufacturing sightholder was appointed in 1997. And New Yorkers were well represented among the ?Millennium sightholders??the elite group that marketed De Beers? Millennium brand. Of the 14 chosen worldwide, eight had offices in New York (but aren?t necessarily based there). More important, with the U.S. retail market doing well, many dealers say they are, too.

Yet many still are concerned about New York?s future and feel that, with middlemen vulnerable, the future lies not only in dealing but also in manufacturing. ?New York needs to manufacture again, or we won?t survive,? says Mayer Herz of the Diamond Dealers Club, who?s now working for Mondera, an online retail jewelry store. ?Otherwise, in a few years, we will have people from overseas selling to our customers and doing everything that we used to.?

For all of New York?s current strength, its manufacturing sector has remained stagnant the last few years. ?Things are status quo,? says Sheldon David of W.B. David, a De Beers Millennium sightholder. But holding on is not necessarily bad, especially in light of the recent Asian turmoil.

With the exception of the best and most expensive stones, De Beers still views New York mainly as a distribution center, mostly because of the high costs of production?especially when compared with centers like India. ?De Beers is favorably inclined to New York as a diamond center,? says Jeff Fischer, president of Fischer Diamonds and the Diamond Manufacturers of America, a New York group. ?They are supportive of us to manufacture the type of goods we specialize in. But we need to convince them we can do a broader range of goods.?

Some worry about other centers nabbing New York?s niche?larger, better-quality stones. ?There?s not the old categories there used to be,? observes Hertz Hasenfeld of Hasenfeld-Stein, another Millennium sightholder. ?Israel?s cutting New York goods, and in some cases, so is India.? Joseph Schlussel of the Diamond Registry thinks New York?s biggest competitor could be Russia, which also specializes in bigger, finely made stones. ?The Russian goods are cut well,? he says. ?They?re doing the same kind of work we do.?

Bringing in robots. Through the years, New Yorkers have tried to re-energize their manufacturing sector?with mixed results. Last year, the Diamond Dealers Club launched a political action committee to work with the government to forge independent relationships with African nations. The PAC also hopes to get money for a training program to ensure New York has properly trained cutters for the future.

Others are looking to automation. Herz thinks the right machines could eliminate the labor cost issue and make it economical to manufacture a wider range of goods in New York. But while a handful of New York?s bigger factories are starting to use robots and other automated devices, cutters have lagged behind those in competing centers in developing new technology. Others note that the stones New York specializes in still require a lot of human intervention.

Ironically, one of the most successful strategies for keeping diamond manufacturing in New York has been to move part of it elsewhere. ?You are seeing a lot of partnerships,? says Hasenfeld. ?People will do part of the stone here and part of the stone in Puerto Rico.? And some are beginning to feel that, given the current good times, the case for a hasty revival of the manufacturing sector may be overstated. ?You don?t have to produce something to deal in it,? argues Schlussel. ?New York doesn?t produce a lot of art, but we sell more art than anyone else.? After all, there are worse things than being located in the world?s biggest consumer diamond market.

?New York needs to manufacture again. Otherwise, in a few years, we will have people from overseas selling to our customers.? ? Mayer Herz