Examination of witnesses (Questions 120-139)
TUESDAY 24 APRIL 2001
SIR JOHN
KERR, MR
PETER COLLECOTT,
MR DAVID
REDDAWAY, MRS
DENISE HOLT
AND MR
MATTHEW KIRK
120. He said you could start measuring success—and
you talked about diplomatic websites—in the number of hits,
for example. Do you do that sort of thing? Do you assess the hits?
(Sir John Kerr) Yes, we do.
121. Do you do a league table?
(Mr Reddaway) 780,000 page impressions for the websites
of the posts and the FCO per week.
122. They would presumably vary enormously.
(Mr Reddaway) Yes.
123. Do you have targets? Do you say to a post,
"You have not had many hits this month"? This seems
to be Mr Leonard's theme.
(Mr Reddaway) We do have a target for quantity. We
are not sufficiently advanced in collecting our information to
know precisely who is targeting but obviously we would encourage
opinion-formers and decision-makers to come to us for authoritative
information on the UK.
124. I think this went a bit further than re-inventing
the wheel, Sir John. He said if you take Seattle and the way the
alternative society hijacked the agenda, or the French beef ban,
there are publics which affect our interests much more than even
governments can and that you have to somehow find a means of reaching
the publics. Do you think this is something more than just re-inventing
the wheel?
(Sir John Kerr) Yes, I am sorry, I was talking about
the techniques of diplomacy. It has never been a closed or smoke-filled
rooms profession. It has always had to go out there. You may remember
Sir Nicholas Henderson's great success during the Falklands War
in America when he was on every morning show on American television,
up against the Argentine ambassador, and did very well and did
us rather a lot of good. Let me start with Belgrade. I was very
struck to see how Milosevic fell. The fact that Milosevic was
going to fall was pretty certain, the timing was not altogether
surprising, but the method was very striking. It was the internet
which called out the demonstrators who got him down. The television
stations were not showing what was going on, the radio stations
were not carrying what was going on, but people all across the
country knew what was going on because they were on the internet.
I was very struck by Charles Crawford's answer to the Committee's
question when you asked him if he needed a post in Podgorica.
Maybe he does, we do not know, but his first answer was, no, they
are all on the internet, we can talk to them on the internet in
Montenegro, a half hour flight away. On Seattle, I think you can
over-egg the argument a bit. Mark Leonard has a point, but about
half the crowd on the streets of Seattle were demonstrating against
the World Trade Organisation and the idea of another round because
they said that WTO was too powerful, and about half were demonstrating
because they said that WTO was not powerful enough. There is a
mixture of people out there and I think you need different techniques
and some of them you certainly need to talk to more, which is
one of the reasons why we, the Foreign Office, talk a lot more
to NGOs than we did when you were with us. We are much closer
to the Oxfams and Amnesty Internationals than we were 20 years
ago. I think that is an extremely good thing. We have an interchange
in both directions. We understand how they work much better and
we bring them in to advisory fora in the Office in a way which
would not have happened 20 years ago. I just do not want you to
take the point too far. I think we do need another WTO round.
I think free trade is good for us, and I think that those who
believe that free trade is good for us and who think we do need
another WTO round are going, in a way, to have to face down the
special interests that say no for environmental reasons, or for
labour law reasons, or for protectionist reasons, or because,
if they were honest enough to say, it is because they think free
trade is not really very good for you. I think that being close
to the interest groups is not enough; you need to listen to them,
you need to understand what they are saying, but in some cases
you have to decide that they are wrong.
125. The second witness we had was Mr Reich
from the Royal Institute of International Affairs. He actually
took apart, in his evidence, on page 28 of the Foreign Office
report. Page 28 on UK/US relations and said that there are now
no longer necessarily vital interests coinciding, particularly
the Bush Administration, it is hemispheric, it is looking to the
Americas. He described the so-called special relationship over
the last 40 years as being a season of coincidental common interests
which now had all disappeared one by one, and that in fact the
United States, the US/Europe, US/UK relationship was not anything
special at all in the way he has described on page 28, and that
the US certainly did not look to us as a bridge with the European
Union in any shape or form. He basically assaulted our perception
that we were bit players and said we should in fact just concentrate
on becoming very good commercial diplomats and get on with the
job of defending the narrower British national interest. Do you
think he has got a point? Do you think the Bush Administration
is actually going to be dramatically different in that sense?
(Sir John Kerr) No, I do not think he has got a point
at all, I am afraid. I do not know him, but I look forward to
reading his evidence. When I was Ambassador in America I do not
think I ever used the phrase "special relationship",
because the American relationship with Israel, or with Ireland,
or with Canada, or with Mexico is also special, but I was struck
by the strength of the relationship with us. I thought it was
if anything rather stronger than when I first knew America, which
was in the 1960s and 1970s—rather stronger because it had
become more organic. Reagan/Thatcher, or Clinton/Blair, or Kennedy/Macmillan,
that is excellent, but that is the icing on the cake. What had
changed was a much greater organic economic link between the two
countries. In the mid-1980s, when I was Head of Chancery at Washington,
I believed the theory about the tectonic plates and Pacific drift,
and all that stuff which we all theorised about in the mid-1980s;
but it absolutely did not happen. The United States had not got
fixated with the Pacific. What did happen was that the Japanese
stopped buying up America and the British bought up America instead.
There is 200 billion dollars worth of British investment in America.
There is 200 billion dollars worth of American investment in the
UK. 40 per cent of all American investment abroad is in Europe
and 40 per cent of all the American investment in Europe is in
Britain, which is great, and that is not just stock, that is flow
as well, year on year it goes on happening. There are millions
of people in both countries whose employer lives in the other
country. Also, of course, tourism has taken off too. Millions
of British people go to Florida for their holidays now. Of course,
the generation that fought in the war now has nearly gone, but
it has been replaced. The historical link, an emotional link,
has been replaced by an economic link which also is not without
some emotional tie. So I would say the transatlantic relationship
is very strong indeed, and I do not think that will be changed
by the change of Administration in America. People like Colin
Powell, Donald Rumsfeld, Dick Cheney, George Bush know Britain
extremely well, they are people who will naturally want to talk
to the British. And there is a very strong American interest in
the health of the British economy. It is crucially important to
all these Americans that have their operation here, and I think
they will go on regarding us as people who are arguing for an
open European Union, a non-fortress Europe; and I think they will
go on feeling it is very important that we should be at the core
of that Europe, so that their investments in Britain are not in
an outer tier of the European Union. However, I think that there
is no reason to expect any decline in what is an extremely strong
relationship, and a rather stronger one then in the 1970s when
I first knew America.
126. In that case, why is it that if you look
at the total diplomatic resources spent on Western Europe in the
15 European Union countries, which tot up to £40 million
worth of Foreign Office money, in the United States, an economy
and indeed a nation or a continent of the same size, we only spent
£20 million? Do you think that the balance of your resources
is out of kilter in that case? Why is it half the European expenditure?
(Sir John Kerr) I suppose, because people think, erroneously,
of course that Americans speak the same language as us, whereas
the French, the Germans and the Italians demonstrably do not,
they may also think there is less of a role for embassies in helping
there.
127. So you think language is the reason for
twice the cost?
(Sir John Kerr) No, but there are a lot of countries
in Europe. We also have a lot of posts in America, and we have
been increasing the posts. In the last three years a number of
posts have opened in America. We have opened posts in Denver,
in Calgary and in Monterrey, for commercial reasons. We are increasing
our commercial effort in America. It is very cost effective and
it is growing. In Europe, yes, we have been increasing our number
of posts but for different reasons. With the encouragement of
the Committee, we have been strengthening our posts in the Caspian
and the Caucasus, we have been opening new ones in places like
Pristina and in Banjaluka. I do not recognise the numbers, Ted.
You may be absolutely right about the 20/40.
128. They were in a Parliamentary Answer.
(Mr Collecott) Then they must be right.
129. If you say you are opening new posts in
the United States, why are you closing the residence in San Francisco,
which everybody feels passionately about?
(Sir John Kerr) We have absolutely no plan whatsoever
to close the consulate general in San Francisco.
130. No, the residence.
(Sir John Kerr) Opinion differs on the house. I believe
the present incumbent is using it extremely well, that is absolutely
clear. But I am not myself 100 per cent sure that its sort of
home counties 1920s atmosphere is exactly right for a Silicon
Valley.
131. American silicon valley people I have met
think it is marvellous, that it is different and fascinating.
(Sir John Kerr) I do not know. There is a big issue
lurking under this, which is asset recycling. I think it is very
good that we have a deal with the Treasury whereby, if we sell
capital abroad, we can use it for our investment budget.
132. If you sell it, you have to give it to
the Treasury, do you not?
(Sir John Kerr) I do not have to give it to the Treasury,
it comes back to me and I can spend it, whereas in the old days
I had to go on my knees and ask the Treasury if I wanted to buy
something and I had to give them the money if I sold something.
So I think all property abroad should be assessed regularly to
see, against key performance indicators, whether it is delivering.
That is quite a valuable property in San Francisco. It is also,
in my view, a slightly old-fashioned property, so I think it needs
to be looked at.
133. The BTI thinks it is valuable too. In their
note to us they say: "The Consul General's Residence has
therefore been an integral part of our operation. A variety of
events have been held there .... We estimate that on average about
2000 people a year attend functions", etcetera. I was very
surprised at how powerfully and strongly BTI came out in favour
of this 1920s something residence.
(Sir John Kerr) I am not surprised at all. It will
not astonish you to know that I saw that letter before it reached
even you, Ted. Its terms are absolutely correct. I believe every
word of it. It is very important that we have a prestigious showcase,
particularly for commercial work, in the city of San Francisco.
The offices we have are small. That is fine, provided that we
have somewhere else to hold the big party or the big event. I
do not know if you know the apartment in Chicago?
134. I have never been to any of these places.
(Sir John Kerr) There is something to be said in America
for going for what we have in Chicago, which is a duplex apartment
on the 49th floor, with a staggering view of the lake. It varies.
Maybe we are not quite right with our Great Missenden image in
a San Francisco house.
Chairman
135. But you are re-branding away from the 1920s
image? The decision is made, is it?
(Sir John Kerr) No decision has been made, no. And
if we find something in San Francisco which we think would be
better, we had better consult Mr Rowlands, I guess.
Mr Maples
136. On this question, I was going to ask you
about the impact of resource-based accounting which, for some
departments, one can see makes a lot of sense. I know you may
have some unique and esoteric difficulties, in that you do own
some extremely valuable historical properties, and I do not know
how you value your property, for example, in the Champs Elysées
which we discussed. Is this enabling you to make sensible decisions,
or distorting the way you make decisions? Are you required to
make some account for some notional return on the value of the
embassy in Paris, whether it is in Paris or not? Can you tell
us briefly how that works, and whether you think it is creating
sensible incentives or perverse incentives?
(Sir John Kerr) I think they are sensible. I think
Peter thinks they are sensible. I worked for a time for the Treasury,
of course, so I may have a de«formatium professionnelle here.
I think the idea of paying a capital charge—6 per cent on
all our stock—is perfectly reasonable. I think it forces
us to address decisions which we probably should always have taken.
We made a large sum of money the other day by selling the bits
of the garden of the house in Singapore which you cannot see from
the house, a very large sum of money. Much the same as we got
through our change in Dublin where we have moved, or are moving,
to a rather nicer house than we had, through a quirk in the planning
law the development value of the land we had was huge; there was
no development value on the land we had bought, it was simply
a piece of estate. So this sort of decision is not one which would
necessarily have been what my predecessor 50 years ago would have
sat at his desk thinking about, but I think it is rather good
that I should be obliged to do so, because we are sitting on about
£1.6 billion of stock. Perverse incentives could arise. I
do not think it is yet. Peter, do you want to address incentives?
Is there a serious risk?
(Mr Collecott) I am not conscious of perverse incentives
at the moment certainly in that area. Sir John has talked about
the incentives to look very carefully at what our capital stock
is and the degree to which not only the current expenditure that
we make but also the capital we are employing are being employed
effectively in pursuit of our objectives—that has got to
be what it is about—and therefore the degree to which we
have to look at selling some assets and buying other assets. It
also has positive incentives in terms of decisions not so much
for residences but more for offices and should we rent or should
we buy. That depends entirely on the particular country you happen
to be in and the type of building that there is available, and
until now we have not really had in our hands the right kind of
tools, the right kind of budgets, to say what is the right decision,
what is the right decision to make in those circumstances. So
I think it is forcing us to look at our capital assets, to make
proper decisions about whether one should employ capital or running
costs to satisfy a particular need to achieve a certain objective.
We have no prejudice either way, we are not prejudiced in favour
of selling buildings in order to rent or buying buildings in order
to save on rent.
137. I am encouraged that you are both so sanguine
about this. If I can pursue this in a little bit more detail.
If one took the British Embassy compound in Tokyo, the Tokyo compound,
if I can call it that, that must be phenomenally valuable. I do
not know what Tokyo real estate is worth now but when I was lucky
enough to visit there a couple of years ago the Royal Palace in
Tokyo was worth the same as the United States. If you start to
take a six per cent return on capital value from real estates
in Tokyo and compare that with what you could get for that in
other countries around the world, does that not start to lead
you to decisions that maybe we should do something very different
in Tokyo because through the artificial consequences of this account
it allow us to get a bigger bank rather than something else. That
is the sort of thing I am concerned with.
(Sir John Kerr) In principle, yes. But the Tokyo example
does not work. We do not own it, we rent it from the Imperial
family.
138. It is a long lease?
(Sir John Kerr) It is, at an extremely low rent.
139. The lease is very long.
(Sir John Kerr) It is up for renewal now. I do not
know what the precise terms of the lease are but I know that we
are renegotiating the rent now. I do not know what its value is
in our capital account but it has no development value at all,
because (a) we do not own it and (b) if we did, it would not be
possible to build on it. As you know, it is just across the water
from the Imperial Palace, absolutely marvellous place to occupy
but not somewhere where even an avid property investor like me
could put up a skyscraper. If, on the other hand, we did own it
and if it would not have caused huge unhappiness to the Japanese
Imperial Family if we were to sell it, say if we moved to some
other part of town and we did own it, then I think it is quite
right that the taxpayer should require us to think seriously,
to do a cost benefit analysis about whether that much of the nation's
capital stock should be there or whether we should be required
to downscale. Fortunately the question does not arise because
it does not have that kind of developmental value.
Chairman: Sir John, I will be coming back to
personnel matters including security but to follow up the asset
matters I have question from Mr Chidgey and then Sir John.
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