Newsmaker: Paul O’Neill
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JIM LEHRER: And to our Newsmaker interview with the Secretary of the Treasury, Paul O’Neill. Mr. Secretary, welcome.
PAUL O’NEILL: Nice to be with you.
JIM LEHRER: What effect is the Enron debacle having on U.S. business and economics?
PAUL O’NEILL: Well, I think it’s not so clear although there does seem to be some carry over effect into some other companies where people are questioning accuracy of numbers. I don’t see it as a major effect yet but there are some companies that are clearly being effected by the… A question about the integrity of their financial numbers.
JIM LEHRER: Senator Olympia Snowe, Republican of Maine, said yesterday, “It has rattled the economic underpinnings of this country.” Is she right about that — the Enron thing?
PAUL O’NEILL: I think maybe it’s a little strong but it’s clear that there are lessons we need to learn from this economic debacle. The President put us to work a couple weeks ago to look and see what kind of changes we should entertain and make to ensure that people are better protected against behavior that causes them to lose their 401(k) investments or pension money and he asked us to form a separate group to look at disclosure requirements to see if the laws and rules and regulations are missing something in their specificity and what needs to be provided.
Last week the President already acted on the question of how do we better protect individuals by saying that we should look to the question of diversification and the President said we think there should be earlier opportunity for diversification of shares that an employer puts into a matching fund; that there ought to be a very strict parallel relationship between the leaders of corporation, the big shareholders and the littlest people.
I think the President said in a colorful way which really carries I think, which is that the sailors ought to be first and the captains last, which I think is a good principle to observe in all kinds of behavior. The supposed leader or the person who is supposed to be the leader should always put the people first.
I think it’s a good principle, and basically it says in the shareholding issue that if shareholders, little shareholders are not able to trade their shares for a period of time, then the big guys shouldn’t be able trade anything either.
JIM LEHRER: But in a more general way you came from the corporate world back in the government it take this job.
PAUL O’NEILL: I did.
JIM LEHRER: Are you concerned that there may be other Enrons out there? I’m not talking 401(k) plans so much, but where there are some bad figures, where people are using phony figures in fact to inflate their returns and inflate their profits and to jack up their – their stock prices and all the rest?
PAUL O’NEILL: My own view is in all walks of life 95 or maybe even 99 percent of the people are doing the right thing or trying to do the right thing. There’s some fraction… I personally believe it’s not a very big fraction of people who are trying to either skate on the edge or blatantly violating what the rest of us consider to be a good and fair and high value driven things and I think frankly don’t think it’s possible to stop intentional malefactors from doing their ugly things.
JIM LEHRER: So you think Enron is an aberration, not a sign of something worse or deeper?
PAUL O’NEILL: In my experience, and I have been around now quite a while, I think the great bulk of Americans and American institutions are driven by and dedicated to high value. There are some that obviously are not. Those that are not I think we ought to bring to justice. People who have intentionally violated the trust that we expect of them ought to be put in jail.
JIM LEHRER: What do you make of what is being called “Enronitis” on the stock market — people worried about accounting problems that could jump up in other companies. Is that a legitimate fear? Should people be worried about this right now — in future investments?
PAUL O’NEILL: It says something very important about the way our system works. Our system of entrepreneurship and entrepreneurism depends very much on trust. And in order for us to proceed in the way that we have been for a long period of time, we need to be able to trust leaders.
We need to be able to trust information. And if you look at the difference between the cost of capital in the U.S. system as compared to most other places around the world, the cost of capital is lower here than in almost every other place in the world because our system has produced values based on trust and reliability and the integrity of leaders. It’s the difference between our rates and some place where’s the rate is 18 percent, and you can’t count on anything.
JIM LEHRER: So do you think maybe Congress and the press and others are making too much of the Enron scandal?
PAUL O’NEILL: No, no, no. I wouldn’t maintain that for a moment. Lots of innocent people were hurt. I think we ought to pay attention to those kind of circumstances. It appears – although I think we need to be careful about being judgmental before we have all the facts – but it appears from what has been reported that there were intentional actions to mislead or to… or produce the possibility that people would be mislead by not giving them all the information that they should have.
Those are wrong things. And I think as we have… As the evidence is more clear it may become more clear, then I think malefactors ought it be brought it justice, as I say up to and including putting people in jail.
JIM LEHRER: But you’re not so concerned that you as Secretary of the Treasury are looking around at other possible problems within the system that don’t relate directly to Enron and alleged malefactors there but problems within the system beyond the 401(k) thing?
PAUL O’NEILL: I don’t think we have a general problem but in the meetings that we have been having with my peers and the group looking at disclosure questions, I think we’re settling on a point that we’ll end up reporting to the President, which is this:
There’s probably some value in drawing even more sharply than we ever have the role and responsibility of leaders and in this case of CEO’s and chairmen of companies, to make it clear that they have a duty to shareholders and to their employees that obligates them to give everything and anything that ought to be on the table to those groups so that they are full and completely informed and are not either knowingly misled or allowed to draw wrong conclusions because of the absence of information.
JIM LEHRER: So you’re thinking about legislation that would make this law?
PAUL O’NEILL: I don’t know whether we need to do this with legislation. One of things we’re looking at is whether for example the SEC has the regulatory power to sharpen the certification that might be asked of leaders.
I’m one who believes leadership means not privilege but accountability and responsibility. And I think we need to make it really clear that those who have been called to high responsibility and accountability have very strong portions of both and real privilege and the opportunity to produce value, not to make off with a lot of money.
JIM LEHRER: Robert Kuttner was on this program last week and he said that meanwhile there is an Enron drag, what he called it, on the economy. Do you agree with him? Is it having an effect within the economy?
PAUL O’NEILL: I don’t know. I don’t think so. So for as I can tell the Enron transactions that they had agreed in their business process have all proceeded as planned. So I don’t think there’s an effect in that sense.
JIM LEHRER: Psychological I think is what he was talking about.
PAUL O’NEILL: I don’t know. We ought to leave it to the psychologists. I don’t claim to be that.
JIM LEHRER: Generally speaking, how is the economy doing? How is the recovery going from your perspective?
PAUL O’NEILL: Good.
JIM LEHRER: How good?
PAUL O’NEILL: Well, you know, back in October – you know, it’s a lot of fun to be able to say I told you so – but back in October when we reported the third quarter was negative because of terrorist events of September 11, I was asked what is going to happen in the fourth quarter? Aren’t we for sure in a recession now? And I said, I think there is a possibility. It’s not a great possibility. But there is a possibility the fourth quarter could be positive. And you know I got hooted up and down the land about this is a guy who is really out to lunch.
The fourth quarter I’m happy to say was positive. It wasn’t a big number but it was a positive number that I expected to see. And it wasn’t a wild guess. It was from knowing about and learning about these things for 40 years and being in touch with people throughout the country — and having a sense, which was confirmed today, that leaders out there were not waiting around for things to get better. They were taking action. The confirming factor today was the disclosure that the fourth quarter productivity growth was 3.5 percent, which is a phenomenal result.
JIM LEHRER: Explain that. Why is that so phenomenal?
PAUL O’NEILL: It’s because in the general case in the past when we have had an event like September 11 or a slowdown in the economy, leaders take a while to react. They kind of hope against hope that things are going to get better before they start taking corrective action.
In this case what we saw is leaders getting rid of excess inventory and as difficult as it is dealing with excess capacity including people that weren’t really needed to do the work, the leaders acted so quickly that we got a huge improvement in productivity in the fourth quarter, which laid the ground for a much more rapid recovery than we otherwise would have.
So, you know, I was not surprised that we got a positive fourth quarter. I thought there was a possibility of that. I was frankly, a little surprised at 3.5 percent productivity growth. It was a half percent or more better than what I expected.
JIM LEHRER: Explain for folks who don’t follow all of this and know the language of the economy, et cetera, what recovery means. What is a good recovery? What are you talking about when it’s all over?
PAUL O’NEILL: In a typical recovery – well, let’s talk about steady state. Our economy has the potential to run a 3 or 3.5 percent growth every year with no inflation and with higher levels compensation on an ongoing basis.
JIM LEHRER: Everybody is doing well.
PAUL O’NEILL: That’s our potential.
JIM LEHRER: Okay.
PAUL O’NEILL: Okay. Now, in a typical recovery, you would expect to see two or three quarters of growth at over 5 percent but what we put into the President’s budget is getting to3 or 3.5 percent by the end of this year. So we think we have been very conservative.
I think from the data we’re seeing right now in the first quarter we’re going to be some multiple of the .2 percent in the fourth quarter. I won’t tell you a number now but it’s going to be positive and it’s going to be a multiple of the fourth quarter.
And I think we’re on our way to at least a substantial inventory snapback in the early part of this year, and then I think with business investment kicking in we could be back at good growth rates, which is where we ought to be. We need it to lead the world. We need it to get Japan and Europe to do it too, but we need to fulfill our responsibility to our own people, which gives us the ability to work on these other problems around the world.
JIM LEHRER: You see no potential problems left in our economy?
PAUL O’NEILL: I would… We’ll always have problems. You know and I think it’s wise to pay attention to the farmers of America no matter how well they did last year or how well they are doing this year, there’s always something wrong. That’s not a bad perspective to have about economics. As Andy Grove in Intel has said if you’re not paranoid, you’re not paying attention.
JIM LEHRER: The economic stimulus package as we reported in the News Summary neither the Republican nor the Democratic version could get through the Senate. The Senate majority leader withdrew it. For all practical purposes it’s dead. Based on what you said I guess it doesn’t really matter.
PAUL O’NEILL: That’s regrettable I think. The President called for a stimulus bill on the 5th of October. I worked as hard as I knew how to work about the leaders of Congress to try it get it done before they went home in December.
And we just couldn’t push it over the top. Now it’s true our economy is going to recover no matter what. But we’re convinced, the President was convinced and I’m convinced that we could speed the rate of recovery, and we could avoid losing any additional jobs by taking the stimulus action the President proposed. We think – our economic analysis says the difference with and the without the stimulus bill is 300,000 jobs.
JIM LEHRER: Three hundred thousand jobs.
PAUL O’NEILL: In an economy that employs 130 million people, well, you say, well, 300,000 doesn’t matter but it matters to every one of those 300,000 people. And the President doesn’t believe we ought to play Russian Roulette with the 300,000 jobs. So are we going to recover? Yes. Could we better assured that we didn’t lose any additional jobs with the stimulus? Yes. Is it regrettable we didn’t get it? Yes.
JIM LEHRER: What would you say – speaking of using the word “matter” — that if it really mattered, Congress would have done something – that there would have been so much heat on them from the public and everybody else, that the reason they didn’t do anything, either the Republican version that the President wanted or the Democratic version, was because it really didn’t matter, was perceived has not having to matter? Even Alan Greenspan, Chairman of the Federal Reserve, said, oh, well, I’m not so sure we need to do it.
PAUL O’NEILL: I don’t think that’s quite a fair rendering of Alan. What Alan said was he was conflicted.
JIM LEHRER: Conflicted.
PAUL O’NEILL: Whatever that “verb” means.
JIM LEHRER: Right. Okay.
PAUL O’NEILL: I don’t think he would maintain that no jobs would be saved or created by 70 or 80 billion dollars worth of money properly placed into the economy. And you know I think hopefully it’s not really over. We’ll see.
JIM LEHRER: I read some things today this afternoon that what really is not over is that now the Republicans and the Democrats will go out and blame the other one for not having passed a stimulus package. If anything goes wrong with the economy, that’s what it will become, is a political issue, not an economic issue. Do you see it that way?
PAUL O’NEILL: I’m just not much into that. I’m into getting things done. Going around blaming one person or the other for what we didn’t get done – you know, I think those of us who believe that we’re leaders if we don’t get the right things done, then we hold ourselves accountable not someone else.
JIM LEHRER: What’s the latest from your perspective on what is going on in Argentina? Are they pulling out of it? How do you read that situation?
PAUL O’NEILL: They are working hard on it. I talked to the finance minister again last night in Argentina. We’re in close touch with them. You know we care a lot about what is go on there. We hate seeing the social unrest. And we put them in touch with what we think are the world’s leading experts on the subject that they are struggling with. We’re doing everything that we know how to do to help them create a sustainable economic system.
JIM LEHRER: Except pushing to get them IMF help, the United States is not backing that, right?
PAUL O’NEILL: Well, you know in order to have sustainability, there are a number of things that have to be done. They have to deal with their – what has been a fixed currency situation – you know, there’s no place in the world that has been able to maintain a fixed currency. They are dealing with that. They have got a very unusual relationship between the provinces and their federal government — the equivalent of our states and our federal government.
They have a system where the provinces can create obligations for the national government whether the national government wants them to or not. It’s not a sustainable political system. And so they have got to deal with that issue.
JIM LEHRER: But that’s been your position from the beginning, has it not?
PAUL O’NEILL: Right.
JIM LEHRER: That they have to fix it; the United States can’t help them?
PAUL O’NEILL: Well, you know at the end of day sovereign governments are responsible to their people. I think it’s fair for us to have ideas and knowledge about what is a sustainable political system. It’s not up to us to impose it on them. It’s up to them to create it themselves, and then we can help them with money.
JIM LEHRER: You said something at this economic forum in New York. “We have spent trillions of dollars in overseas aid but we have precious little to show for it.” Is this the kind of thing you’re talking about?
PAUL O’NEILL: What I’m talking about in that quote is having worked around the world for the last 40 years and having demonstrated in 36 different countries around the world that it’s possible to take and work with human beings in every kind of country and help them become highly productive, high earning people; that it’s a tragedy that there is still billions of people who live on a dollar a day or two dollars a day. And that’s what my comment means.
I believe the world can do better. I think it’s the obligation of people who would call themselves leaders to make it better by creating sustainable social systems that so every human being has the possibility of realizing their God-given potential. And, I think every one of those people out there that doesn’t realize that, and there have been billions of them in the last 40 years — if it doesn’t weigh on your heart, then you’re not a leader.
JIM LEHRER: Mr. Secretary, thank you very much.
PAUL O’NEILL: My pleasure.