Treasury Nominee Likely to Play Big Role in Bush Administration

Paul H. O’Neill may not have been familiar to most Americans before he was tapped Wednesday by President-elect George W. Bush to be the nation’s 72nd Treasury secretary. But he seems to know almost everybody who has--or will have--power in the new administration.

O’Neill, 65, described himself at a news conference as having knocked about with Federal Reserve Chairman Alan Greenspan for more than three decades. He worked with Vice President-elect Dick Cheney during the Ford administration. Bush’s father, President George Bush, tried to make him Defense secretary.

O’Neill’s extensive network of friends, his widely acknowledged competence in business and his long experience in the brutal global market for aluminum are expected to make the spare, white-haired executive a central player in the new administration.

And none too soon. Weighted down by profit concerns, the nation’s financial markets plunged to near two-year lows, a chilly reception for what Bush called “the chief financial officer of our nation.”

But O’Neill’s strengths also could prove his weaknesses, especially among those to the right and the left of the new president’s political coalition.

“Paul is not a political ideologue,” commented William A. Niskanen, chairman of the libertarian Cato Institute, who (of course) has known O’Neill for years. “He would have been comfortable in a centrist administration of either party,” said Niskanen. Which is no compliment in some conservative circles.

“Alcoa under Paul O’Neill has done nothing to protect the air quality of our state,” charged Travis Brown, president of Neighbors for Neighbors, an Austin, Texas, citizens’ group fighting the aluminum maker’s effort to expand in Texas.

An Alcoa smelter in Rockdale, about 50 miles northeast of Austin, is one of the state’s biggest polluters, but its operation has been protected from regulation by grandfather provisions in state law. A drive to withdraw the plan’s exemption was largely defeated last year at the behest of the governor, George W. Bush.

O’Neill beat out a series of more traditional candidates for the Treasury nomination. Wall Street barons such as Painewebber Inc. Chairman Donald B. Marron and former Credit Suisse First Boston Inc. executive John M. Hennessey were thought to have an inside track to the position because of their deep knowledge of financial markets.

O’Neill succeeded in large measure because of a different kind of knowledge, that of the way Washington works.

After graduating from Fresno State University in 1960 and doing a year of graduate work at Claremont Graduate University, the Alcoa executive began his work life as budget analyst for the U.S. Veterans Administration and later the Office of Management and Budget. He rose to deputy OMB director, where he got to know Greenspan and Cheney, before Democrat Jimmy Carter defeated Republican Ford in 1976.

He kept up his public sector contacts after leaving the capital to become president of International Paper Co. and then chairman of Pittsburgh-based Alcoa--a job he landed with the help of Greenspan, who was then on the firm’s board.

He headed up a steady stream of studies and commissions--on, among other things, medical errors, educational reform and downtown development. He served on the boards of two think tanks, Santa Monica-based Rand Corp. and Washington’s American Enterprise Institute, where Cheney is also a director.

He stayed in touch with important people like Greenspan. As he put it Wednesday, “I’ve made it a business to come by [the Fed] on a fairly regular basis and tell him what I thought he was doing wrong.”

O’Neill’s criticism apparently did not upset Greenspan, who issued a statement Tuesday praising the choice of O’Neill for Treasury. But some of O’Neill’s pronouncements over the years have angered--or are likely to anger--activists and politicians, especially those to his right.

During a 1992 economic summit called by then President-elect Bill Clinton, O’Neill endorsed the idea of a “carbon” tax--a substantial levy on gas and other fuels designed to encourage conservation. He has embraced a cause--doing something about global warming--pushed by Bush’s election rival, Al Gore.

“The question is,” O’Neill said in a recent speech, “if you were the president and you were presented with some facts that suggested that our biosphere might be in some danger, what would you do?”

Perhaps as surprising to conservatives may be O’Neill’s fervent endorsement of government work as an honorable endeavor. He served on a commission in the late 1980s that recommended drastically raising the salaries of top government employees. After the panel issued its report, he castigated both Presidents Carter and Reagan for demeaning government workers as “ne’er-do-wells and people who couldn’t find employment anywhere else.”

“Amazing!” said conservative activist Marshall Wittmann of the Hudson Institute. “This guy is emblematic of a kind of moderate Republicanism that hasn’t been seen since the Ford days. It’s almost as if the Reagan and elder Bush years never happened.”

O’Neill has also had his share of clashes with the political left, especially in the environmental community.

The National Wildlife Federation was among those to feel his wrath. When group officials called a 1990 news conference to issue a report charging that Alcoa and other firms had made only “phantom” reductions in their toxic emissions, they were surprised that O’Neill was in attendance.

The executive jumped to his feet to accuse the federation of a “malicious” and “scurrilous attack.” Federation president Jay Hair returned the fire, yelling: “Alcoa, clean up your damn act.”

More recently, Alcoa has become locked in a bitter dispute with local groups over pollution from its Texas smelter and company efforts to expand its coal strip-mining operations in the state.

The Texas Legislature debated whether to slap new regulations on the plant and others like it, but ended up opting for what Bush and corporate lobbyists sought, an approach under which companies would voluntarily reduce their emissions.

The smelter controversy may point to what are some of the most unusual aspects of O’Neill’s nomination as Treasury secretary.

In an era when politicians (including Bush) and commentators tout the virtues of the high technology New Economy, the president-elect has reached into one of the oldest corners of the Old Economy for his leading economic player. And at a moment when monopoly-busting is making headlines with cases like the government’s prosecution of Microsoft Corp., he has chosen from one of the most monopolized industries in the nation.

“Alcoa has always been a sitting duck,” said George David Smith, an economic historian at New York University and author of a company-financed history of the firm. “It’s probably the purest monopoly in American history.”

Indeed, some analysts argue that one of O’Neill’s greatest achievements as Alcoa chief executive has been buying up competitors to reduce the industry’s aluminum-making capacity. The company spent $5.8 billion earlier this year to buy Reynolds Metals--a deal that was briefly held up but finally approved by Clinton antitrust regulators--and $3.8 billion in 1998 to rival Alumax.

“Through the acquisitions,” the Pittsburgh Post-Gazette wrote in March, “Alcoa will accomplish much of what antitrust regulators tried to prevent the company from doing 50 years ago.”

Analysts said that O’Neill’s acquisitions and streamlining of Alcoa has largely insulated it from the wild swings in aluminum prices that once disrupted its operations. Since becoming chairman in 1987, company’s revenues and profits have quadrupled.

For his work, he has been richly rewarded. He made $36.2 million last year, including $33.1 million in stock options. That’s substantially more than the commission on which he once sat recommended that government salaries should be boosted.