Just what a fragile global economy doesn't need is a loose cannon as a US Treasury Secretary. Yet after a succession of gaffes that have sunk markets and offended presidents, Paul O'Neill remains unrepentant. Now is the time for him to resign and let other policymakers pick up the pieces, says Suzanne Miller.
If Paul O'Neill secretly pines for the good old days when he ruled US aluminium giant Alcoa with impunity, one can hardly blame him. In those days, nobody thought to question the wisdom of a chief executive who had so admirably turned a lumbering company into one of the industry's big profit generators. All the more reason, then, that Mr O'Neill has seemed bewildered by the barrage of criticism that has dogged him since he became US Treasury Secretary last January. As politicians, market makers and journalists record every misstep and verbal gaffe along the way, Mr O'Neill has shown disarming resilience to all the fuss, saying he's "continually amazed that anyone cares what I do".
Amazed that anyone cares? As Treasury Secretary, Mr O'Neill is the US economy's chief spokesman - someone who needs to understand just how important words are to hyper-sensitive financial markets and, these days, a hyper-sensitive population that has been deeply disillusioned by the abrupt reversal of the country's economic fortunes.
It is his job to deliver a cogent economic message as well as help to ensure there is a cogent message to deliver in the first place. When President George W. Bush introduced Mr O'Neill to the public, he described the 65-year-old aluminum industry chieftain as someone with a "steady voice... someone, should the economy take a downturn, who can calm people's nerves, calm the markets, calm those who would speculate on the dollar". That's when the troubles began. Mr Bush had barely uttered those words when, in February, Mr O'Neill sent the dollar spinning, thanks to an interview with a German newspaper. "We are not pursuing, as it is often said, a policy of a strong dollar. In my opinion, a strong dollar is the result of a strong economy," he told a journalist. People certainly listened. Deciding the government was content to let the greenback drift, traders sank the dollar. The US Treasury was forced to scramble to its defence and issue a statement that there was no change to its long-standing strong-dollar policy - a policy that was regularly reiterated during the Clinton administration.
Since then Mr O'Neill has continued his maverick way with words, dispensing opinions at odds with the administration's public line. In the process he has angered and alienated conservatives in his own ranks and forged a frosty relationship with Wall Street.
Mr O'Neill has failed to emerge as a strong economic light for President Bush and has been blamed for driving a wedge between his economic team and the Oval office. "If you have a Treasury Secretary who, every time he opens his mouth, is going to get you into trouble - well, the president isn't going to meet with those types of people as much," says Bruce Bartlett, a conservative and senior fellow at the National Center for Policy Analysis in Washington. He adds: "Mr O'Neill has diminished the influence of those around him." He has tended to see things differently. On private road trips, he has lectured journalists and accused the press of causing the problems by misunderstanding his remarks. The gaffes have run the gamut: a swipe at the intellectual prowess of Wall Street financiers; disparaging remarks about President Bush's prize tax-cut plan and insinuations of corruption among Brazilian officials.
A few weeks after his dollar remarks, Mr O'Neill triggered a bond market drop when he said a Treasury programme to buy back outstanding government debt was not "a brilliant idea". In an interview with the Financial Times, he downplayed worries about social security funding problems - the money paid to US citizens when they retire - saying: "Able-bodied adults should save enough for their health and medical needs."
Although this is in line with the Republican ideal of self-sufficiency, Washington savants were horrified because the last thing the Bush administration needs during a US downturn-cum recession is a reputation for being uncompassionate. His Africa trip with Irish rock star Bono not only drew criticism from the press but eventually Mr O'Neill alienated his high-profile travelling companion.
The barrage of criticism could not arrive at a worse time. The US economy has been brutalised by the telecommunications meltdown, September 11 aftershocks, a tsunami of corporate bankruptcies and a global contraction. Just when the US economy most needs a strong Treasury Secretary for guidance, Republicans are calling for Mr O'Neill's head, among them Republican Congressman JD Hayworth of Arizona. Critics warn that if Mr Bush does not replace Mr O'Neill after the November mid-term Congressional elections, the president could go the way of his father, who lost his re-election bid in 1992 thanks largely to a spluttering economy.
O'Neill versus Rubin
During these unsettling days, many Washington politicians would be relieved to see former Treasury Secretary Robert Rubin step back on the stage. He is off trouble-shooting at Citigroup as vice chairman, a job he assumed two years into his term as Secretary in the Clinton administration. Mr Rubin cut his Wall Street teeth as co-chairman of Goldman Sachs years earlier and is renowned for his calming manner and affable self-effacement.
He is also known for sparing his superiors from looking the fool. His former boss Bill Clinton was known to hanker after ringing the opening bell of the New York Stock Exchange. Mr Rubin was the restraining hand: he is known to have warned Mr Clinton: ring that bell - and bear the blame if the market falls. Enter Mr O'Neill, who has managed to spook the markets with his unscripted comments at least three times since assuming office. Even Mr Bush has presided over a few market sell-offs of his own. Such was the case on July 9, when he gave his corporate responsibility speech and the Dow Jones Industrial Average closed down 179 points. Although few blamed the speech for the sell-off, the perception was ineluctably there: Mr Bush talks and the market falls. Ditto Mr O'Neill.
This has fuelled a deepening perception that Mr O'Neill has failed in his duty to provide strong advice and direction to his chief. Kim Wallace, Lehman Brothers' chief political analyst, says the difference between Mr Rubin and Mr O'Neill couldn't be starker. "Rubin protected Clinton. When Clinton held his December 1992 economic conference, Rubin was sitting next to the president saying smart things. The difference between Rubin and O'Neill is almost day and night," says Mr Wallace.
That image of Mr Rubin sitting close to Mr Clinton in those early days stuck in the market's mind and was cemented by the hands-on role Rubin played in working closely with Federal Reserve chairman Alan Greenspan over the ensuing months. "The administration was very quickly simpatico with the Fed in what needed to be done on policy," Mr Wallace recalls. And the fact that Mr Rubin looked in charge of the economic scene made Mr Clinton look all the smarter too.
In contrast, some snidely suggest the brief economic summit Mr Bush hosted in Waco, Texas, on August 13 came about as a plea from his economic team: "Hey, remember us?" Says one political advisor: "One of the comments I heard in the Waco conference is that the conference was an effort of Bush's own staff to force him to immerse himself in economic policy. Sometimes you have to force your boss to deal with issues - he has tended to put them on the back burner."
Critics contend Mr O'Neill has little interest in being a personal political minder, coming as he does from the tough-love world of corporate chief executive officers who make their own way. Still, they say his previous government experience should make him savvier than he has been. Mr O'Neill, CEO of Alcoa for 12 years, earlier served as deputy budget director in the Ford administration next to Dick Cheney, who was White House chief of staff and is currently vice president. He also goes way back with Mr Greenspan, who in 1987 was an Alcoa board member credited with convincing Mr O'Neill to join the company.
It was Mr Greenspan and Mr Cheney who brought Mr O'Neill to the president's attention - but having powerful friends isn't always enough. "One of the problems with O'Neill is that he doesn't come from Wall Street like Rubin did and that's a liability," says Steven Moore, president of the conservative political advocacy group he founded called Club for Growth. Peter Orszag, a former Clinton economic advisor and current senior fellow at the Brookings Institute, says: "I don't know that the lack of Wall Street experience has hurt - it may have been one shortcoming. But he did come in with lots of pros - extensive government experience and familiarity with corporate leaders. It's just hard to predict how people are going to perform in top government jobs."
Often it comes down to personality. Mr Moore puts it this way: "Paul O'Neill doesn't have a sixth sense that Rubin so masterfully did." Mr Moore has been calling for the dismissal of Mr O'Neill since last year.
Alienating Wall Street
As politicians stewed in Washington, Mr O'Neill also managed to insult those who work in financial markets. In January 2001, in a Wall Street Journal interview, he described Wall Street financiers as "people who sit in front of flickering green screens... and make decisions on a carefully constructed but nevertheless speculative basis about three-basis point movements". He asserted: "Those are not the sort of people you would want to help you think about complex questions." He capped it off by saying it was the kind of job he could probably learn "in about a couple of weeks". For many, this smacked of blatant ego. Since then Mr O'Neill has discovered that plunging stocks, bonds and currencies are one of the great levellers for those who ignore a basic tenet: don't mess with the markets and never disrespect them. "It was one of his first interviews and it got him off to a bad start - he never recovered," says Lehman's Mr Wallace. "Markets and finance ministers are allies in stabilising markets - there's a role they both play and they need each other. The relationship soured very quickly and I doubt it will recover."
Mr Bush has been looking perilously out of touch as well, focusing more on a possible war with Iraq than domestic economic ills. "The line from the administration now is that they've passed the tax plan and don't have to do anymore," says Mr Moore. "The fact is that it's made Bush look totally disengaged. I think Bush has been misled."
Certainly, his fellow Republicans thought so in September last year, when Mr O'Neill ridiculed a fiscal-stimulus bill from House of Representatives Republicans as "show business". And at his January 17, 2001, confirmation hearing, he said it was unlikely Mr Bush's proposed 10-year $1.3 trillion tax-cut plan would do much to jump-start the economy, contrary to what Mr Bush had promised in his campaign.
Even though he helped to eventually steer a tax cut through Congress, fellow Republicans were unforgiving because Mr O'Neill had publicly broken with the party line. What made it worse was his role as Treasury Secretary, the official who's supposed to champion the government's financial initiatives. In American football, this is akin to fumbling the ball at the finish line to tie a shoelace: you just don't do it. "When the game plan doesn't work, fire the quarterback," Mr Moore says. "It may not be fair to say the bad economy is the fault of the Treasury department, but it may need a fresh face," he adds.
If Mr Bush doesn't act more decisively, some warn, he could end up losing a re-election bid as his own father did 10 years ago. Disgruntled conservatives believe former president George Bush lost the 1992 re-election mainly because he never fired Richard Darman, the then-budget director blamed for allowing the president to renege on the "read my lips" no new taxes campaign pledge. "He was a chief economic spokesman and he led us into the ditch - Bush lost," Mr Moore recalls.
November rout?
Now that war ranks high on the political agenda, many are worried Washington is once again ignoring a troubled US economy. Statistics do not make for cheerful reading. Unemployment in July stood at 5.9% and job growth was stagnant. During the Clinton administration, unemployment dropped by half to 4% - a 40-year low. Currently, the federal budget is headed for a deficit well above $100bn by the end of 2002, according to the Congressional budget office.
Mr Clinton left office with a $4 trillion budget surplus. During the eight years of his presidency, the economy expanded by 50% in real terms - the longest boom in US history. Since the market's peak in March 2000, the stock market lost an estimated $6,000bn through early July. Many fear the economy is teetering on a double-dip recession. Some of this was arguably inevitable given the momentum of ill-starred events since Mr Bush took office - but the economic problems are real just the same.
Mr O'Neill has created the perception that he is out of tune with those problems and matters that require careful diplomacy. Take his August remarks about Brazil. As the world watched Brazil's financial situation deteriorate, Mr O'Neill got on "Fox News Sunday" and said he would oppose any new financial aid to Latin America unless there were assurances the money would not "go out of the country to Swiss bank accounts". The Brazilian real hit record lows. A week later, the IMF unveiled a $30bn bail-out for Brazil and Mr O'Neill, in a volte-face, backed the plan. "It made him look like a fool," Mr Bartlett says.
More than that, Washington observers say, it seemed as if Mr O'Neill had been kept in the dark while other policy makers at the State department hammered out their plan. Mr O'Neill, meanwhile, had to face the infuriated Brazilian president, Fernando Henrique Cardoso, who demanded a retraction. The US ambassador was also summoned to lodge a protest. A chastened Mr O'Neill and the Treasury office issued conciliatory statements, but the damage was done.
It is unclear how much more damage Mr Bush will tolerate before he whispers "Time to go" after the November elections. The president is known for his loyalty and can be as stubborn as Mr O'Neill in standing by his people and his views. "Early on, people didn't sense he was a friend of Bush. But the Bush loyalty showed itself when the president was very firm that O'Neill was his guy and whatever problems were needed to work out were between O'Neill and those with the problem," a senior Republican aid recalls the president saying of the clashes over the fiscal stimulus package.
The situation may be another matter if the Republicans are routed in the November elections. Some fret the party will get the axe as pained American investors who have lost billions in the stock market vent their frustrations. Many believe that is when Mr O'Neill will be forced to go. "I don't think the political advisers of the White House grasped the magnitude of the problem building for the president on the economy and corporate America until May," one political aid says.
Of course, Mr O'Neill could decide to depart quietly for the private sector. There is any number of large foundering companies that would relish his expertise. But Mr O'Neill has yet to show any real concern about his position. In a March 27 speech last year, he told an audience of business economists: "I've discovered that outspokenness is not always a virtue. But I'm going to keep doing it anyway." At the time, his audience laughed. After all Mr O'Neill has shown a rare candour in politics, a trait some find refreshing.
As the leader of a troubled company, this cocktail of candour and single-mindedness can be just the recipe for a turnaround. But as spokesman for the world's biggest economy - one that is battling for recovery - Mr O'Neill needs to proceed with infinitely greater discretion, just what's he's promised he will not do. That kind of candour is a sure recipe for trouble - something the administration and the US economy can ill afford.
