HBO History Makers Series: Paul O'Neill

Wednesday, March 9, 2005

Council on Foreign Relations
New York, N.Y.

[Note: the transcript begins in progress]

PAUL O'NEILL: --Citizens in an enlightened society need to understand that they've not only got to provide for themselves and their children, but they need to provide for the time when they're no longer having a current income; that is to say, they're retired. And so in the course of telling people the truth, in a mature society, I think we need to say to people, we need to say to ourselves, as a society, along with your rights is a responsibility to save, and we're not going to leave it to chance as to whether or not you save; we're going to mandate that we're all going to save.

And so I would begin saving in this way. When a child is born in America, I would say we, the society, out of the progressive tax system revenues, should put $2,000 into their account on that day and do the same thing for each of the next 18 years. And if you do the compound interest of 6 percent, when they get to be 18 years old, that account would have $65,000 in it. And when they get to be 65 years old, it would have more than a million dollars in it.

And if you converted that into an annuity for a 20-year period, which is longer than the life expectancy by a couple of years for 65-year-olds, it would produce an annual annuity of $82,000, which, I would say, would pay for your medical care needs, so we don't need Medicare anymore; it would pay for your financial requirements for housing and food and transportation and entertainment, whatever else you want to do. But every American, without regard to what they did during their lifetime, would be assured when they got to be 65 that they had a substantial annuity, and that there was really meaning in America to the notion that if you were lucky enough to be born in this country, when you retired, you got real financial security.

So on the way to dealing with the mechanical problems that we have right now in front of us for the existing Social Security and Medicare program, I say, first, let's drive a stake in the ground about what we want the future to be. Under my scheme, in the first year it would cost $8 billion; that is to say, $2,000 times 4 million live births, which is about what we have in this country. The second year it would cost 16 [billion dollars], and the third year it would cost 24 [billion dollars], and so on. And when this program was fully operational for everyone between 0 and 18 years old, it would cost our society $144 billion a year. And to put that in context, this year we're going to spend $820 billion on Social Security and Medicare. Forget about Medicaid and food stamps and housing assistance and all the other things that we do.

Now why does this work? Because it has us, as a society, investing in the real economic growth of our society as a way to provision financial security for our aged population. And then it changes what we need to think about doing in the time period between when this scheme kicks in and taking care of the unfunded financial obligations that we have in front of us as things now stand. But I think it changes the conversation because, first of all, we've staked out really high ground for an aspirational society, for what we should want to be, I think, going forward. And then we can tinker around with age rates and wages subject to Social Security tax and the rest of that.

But let me make sure that you get this detail. If this is in effect in 65 years, we'd get rid of the 12.4 percent Social Security tax that we have now, which is basically a tax on labor, which changes the trade-off between capital and labor, and I'm not sure in a beneficial way. So it would have that effect of getting rid of the Social Security and Medicare tax over time.

Now I'm sorry, but it's just complicated. So let me give you another level of complication. At the same time, we desperately need to fix our health and medical care system. Pete [Peterson] told you I would say something about this. And I need to do it now, because this is part of the answer to the question how do we pay for all of this, including the unfunded liability and my scheme, going forward.

Right now, I believe— and it's not a passive belief; it's from working hard in the trenches— that if we did all the things we now know to do in health and medical care intervention correctly, every time, the first time, we could simultaneously reduce the cost of health and medical care by 50 percent and have a huge improvement in medical care outcomes in this country.

Now let me give you a couple of illustrations. You're probably puzzling: How could that possibly be so? So let me touch you on a personal level. How many of you have ever accepted a prescription from a doctor that you couldn't read? [Laughter] Well, there are a few of you who are doctors. So now the general case is, one in every 2,000 prescriptions— one of every 2,000 medication events in this country is wrong. For those of you who are mathematically inclined, you'll know about sixth sigma. In a sixth sigma world, which is where a lot of industrial companies at least try to live, sixth sigma means you only make 3.4 mistakes in every 1 million exposures. Compare that to one in 2,000 prescriptions or medication events are wrong.

Now, there are multiple consequences of that. In the worst set of circumstances, it can kill you. In the best set of circumstances, the pharmacist says, "I can't read this either, and I'm not going to guess what it is," and he calls the doctor. Now, this is what I mean by working in the trenches. In one little hospital, they did an analysis to figure out how much does it cost for the pharmacist to connect with a doctor to get clarification on a prescription. This is a 125-bed hospital; $200,000 a year in a 125-bed hospital. Think about the economic consequences of the wasted value not just in hospital pharmacies but in your local pharmacy with all this wasted activity, and the danger, in the worst circumstance, that you get the wrong thing or the wrong amount and it causes you medical harm.

One more piece. Most of you have known someone or even suffered this yourself. One in every 14 people in this country that goes into a hospital gets an infection they didn't bring with them. You know, in the world that I come from, you don't tolerate things gone wrong that you know how to prevent or avoid. So again, working in the trenches, you go sit in the hospital ward for a week and watch what goes on. Everyone knows, for 150 years we've known from a doctor in Hungary about transmission of disease from hands that look clean. We know all that. Sit in a hospital ward for a week and watch what goes on. Thirty-eight percent of the nurses and technicians follow the agreed process for hand cleaning, hand hygiene, gowning, gloving, and masking before they go into a room where a patient is. Ten percent of the docs. You want to know why one in 14 people gets an infection? Because at the ground level, we're not doing things that we know with precision and scientific understanding to do.

You know, I'm not talking about wrong-site surgeries. I could tell you about that. But it's at the very basic level that health and medical care is costing us a bloody fortune and causing injury and harm and even death to people. The Institute of Medicine did a report five years ago calling attention to the fact that by their estimate, we're killing 100,000 people by medical mistakes. Their number is way too low. It's a much bigger number.

But I created— I almost had a revolution. My wife was worried about our house being fire-bombed because I had the audacity to suggest in the Pittsburgh community, where I formed a regional healthcare initiative, that we, the community of Pittsburgh, should resolve that we're not going to have any more medication errors. And it was interesting to me. I got push-back from every corner. A doc said— honest to God, this is a real conversation. I sat in a room full of docs, and one doc said to me, "You know, I'm too busy; that's why I scribble." So I said to him, "What about if your patient gets hurt?" "Well," he said, "the pharmacy calls me." So I said, "You know, when they call you, does it take any of your time?" "Oh, yeah." "Well, wouldn't it be better if they didn't have to waste their time calling you and you didn't have to waste your time in effect doing repair work?" You know, it's like specializing in— it's like repairing the motor in your car rather than giving you one that never breaks down.

So I got push-back from the docs. The hospital CEOs [chief executive officers] were very interesting. They said, "You know, you're right, but we can't push this because some of our biggest revenue-generators scribble, and if we put this issue to them, they're going to take their patients to another hospital." So I got my business friends together and I said to them, "You know, we need to demonstrate to the country and to the community at large that we're serious. You guys are supposed to be the big muscle people. Why don't you say to your insurance companies and to your docs"--you're all on boards of hospitals— "Damn it, we want you to do this.'"

And they said, after a couple weeks' worth of careful reflection, "This isn't a big enough issue for us." And it wasn't because, I think, this is a big issue, but it's a tell-tale demonstration about whether you're serious about cleaning up the act. And it begins with things that are truly simple. Truly simple.

Well, I'll give you one more set of facts to illustrate the point. When I got to Alcoa, I said, "A precondition in this organization"--I did this the first day I went there— "is that people who work here and people who come onto our work site should never be hurt at work. Not ever. We should have zero safety incidents." And even my own people thought that was lunacy because the day I arrived, they were very good. They were in the top one-third of all companies in the United States in terms of their safety experience. But I said, you know, "We should be at zero." And we started— I'll give you a couple of numbers. We started with an injury rate of 1.86 [percent], when the U.S. average was 5 [percent]. And what those numbers mean is in the U.S. economy in 1987, five people out of every 100 in the workplace had an injury at work that caused them to miss a day of work. Alcoa's number was 1.86, and I said zero was the right answer.

Today, if you get on the Internet and look at the Alcoa site, 24 hours a day they have posted, on a real-time basis, for 43 countries and 450 operating locations, the lost workday rate year to date, and for each of the last 12 months, and what you will see is the number is .06 [percent]. And if you go and look— now let me link you back to health and medical care. The lost workday rate in health and medical care service personnel in this country is 2.1 [percent], more than 30 times worse than a company that produces metal at 2,000 degrees and has lots of clanking, moving machinery, and overhead cranes, you know? And so I'm here to tell you an important part of helping to fix the financial condition of health and medical care and pay for a lot of other things is to practice things we already know in health and medical care. It will make a huge contribution. Today we're spending $1.8 trillion a year in this country on health and medical care. And, you know, discount me by 50 percent if you want— if we save 50 percent, it would produce $800 billion or $900 billion a year to spend on things that are valuable.

PETER PETERSON: OK. Let me change—

O'NEILL: Excuse me, Pete. [Laughter]

PETERSON: That's fine. I sense a certain passion on your part here. [Laughter] You know, in reading the [Ron] Suskind book [The Price of Loyalty: George W. Bush, the White House, and the Education of Paul O'Neill], many things fascinated me, but one was the section on global warming and climate change. I guess most of you know Paul is an acknowledged expert on this subject due to his presidency of International Paper and his CEO-ship of Alcoa.

And apparently, you've had some rather— a lot of analytical evidence about global warming. You joined, as I read the book, with Ms. [Christie] Whitman, head of the EPA, and she, in turn, did her own independent analysis. And you go in to see the president because you weren't hearing this subject discussed. And as the book recounts it, at least, the president courteously says to Ms. Whitman, "I've decided global warming's not a problem."

I've got two questions, one generic and one specific. The specific question is, on what basis do you think the administration, or the president at least, came to that conclusion? And secondly, would it be unfair to suggest that this is an indication of the process by which decisions are made?

You and I knew Richard Nixon. When I was his economic adviser, he used to always insist, "I want to know each of the options. I want to know the cost, the benefits. I want to know the risks. I want to know what the argument is all about, what the critics say, et cetera." Why don't you answer both the specific and the generic question?

O'NEILL: I read a little book on this in 1997 or 1998, because I was concerned about the conversation that was going on. This is a subject on which I struck out with both President Clinton and President Bush.

When President Clinton was in office, I was invited in to see him and to talk with him about this. And I was frequently in meetings with Tim Wirth, who was the undersecretary of state who dealt with global climate change issues, and he was an old friend from the late 1960s. And the plea that I made both to President Clinton and to President Bush was this: There are some subjects that I think are so important that they should be taken out of conventional political conversation and raised to a different level in the dialogue that we have about them. I think nuclear weapons is one of those, because it's ghastly to imagine the consequences of a nuclear war. So that's one that should never be in conventional political conversation. And I thought the subject of global climate change was another issue that should not be about partisan politics or special interests, because it's very clear— I'm sure you all know about these issues— there is no doubt that there has been an escalating accumulation of greenhouse gases in the atmosphere, and there are speculations about what the consequences of that are. There are pretty good projections about what the rate of accumulation is going to continue to be as society across the world, including China and India, become evermore energy intensive.

So there's no doubt about where we're headed because greenhouse gases have a half-life of about a hundred years. We know what the rate of accumulation is going to look like, all other things being constant. And so, I begged President Clinton— and President Bush— to lay these facts out for the American people.

At the same time, you should all know I thought the Kyoto treaty [on climate change] was a bargain with the devil, because it appeared to solve the problem, but it didn't do a damn thing about the problem, to tell you the truth. And the intelligent environmentalists knew that, but they were willing to accept Kyoto as a basis where we got our nose under the tent and later on we'll grow up, you know. It was a terrible thing. And it was all about a political bargain. It wasn't about whether we do the right thing for the world. The Australians, under the Kyoto treaty, have a right to substantially increase their contribution to greenhouse gases, not because of anything of merit, but because their votes were needed to get Kyoto over the top. You know, it had nothing to do with the merits of Australia being allowed to contribute more greenhouse. So I was appalled at that whole thing.

And so, what I wanted President Bush to do when I got there was to stake out the high ground, lay out the facts that we do know, and put together a bipartisan, hard-headed scientific commission headed by or including

Michael Oppenheimer. That was a mistake on my part. I know, some of you may know, Michael Oppenheimer is one of the most respected climate scientists in the world. He was at Princeton. And I have come to know him because I was on the board at the Heinz Center for Economic Science and the Environment. We had worked together. And, you know, he's known as an environmentalist, and he's probably a Democrat, but I didn't give a damn. He told the truth, you know? And so I included him in my list. And I think subsequent events have shown my idea was really destroyed by my having the audacity to recommend someone like Michael ought to be part of this deliberation hosted by the administration. But that was not a winning argument.

As a matter of fact, the first Cabinet meeting I went to, I had this little book with me. You know, it was probably stupid on my part, but I thought everybody would be interested in this. So I took copies for all of the new— my new colleagues in the Cabinet. I thought intelligent people should be interested in issues that are going to affect the—

PETERSON: You're right, that was—

O'NEILL: That was a mistake. [Laughter] You know, I made a lot of mistakes in my life, but it was well-intentioned, you know? I thought people would want to know something. It turned out I wasn't exactly right.

Now, more directly to your question, I don't know, you know, this episode was like a lot of the 23 months I was in the administration. We never really had a conversation that I thought was an engagement about these things. The president asked me to write down my ideas and what I thought we ought to do— which I did, and shared with Christie, including setting up this group, including, I think we should be investing more money in looking at promising ideas about how we could recapture or sequester greenhouse gases as an alternative to savaging the economy as we know today. I think there are alternative technical things that one could consider and could finance in order to see if there isn't some way we can have it both ways, because I can't imagine us being in a— feeling good about saying to the rest of the world, "No, no, no, no, you can't have the same energy intensity we do because it's not good for the accumulation of greenhouse gases." I don't know how you solve that. But it's also related to ideas I have about what we ought to be doing. I'm one who believes that this is a sufficiently seriously problem that, as we think about a combination of foreign policy and economic development and global environment, that we ought to— we, the United States, and we, the people, even in our private role, should be thinking about environmentally sound economic development—

PETERSON: But do you have any idea on how the president arrived at his position?

O'NEILL: I have— I have no idea.

PETERSON: You're not aware of any alternative studies or anything of that kind.

O'NEILL: No. I'm not. I want to finish this one thought, though, because this is important for all of you. You know, there are places in Kyrgyzstan and Uzbekistan where one could do substantial hydroelectric power development that would be good for those countries, and it could provide alternative electrical energy to China, but it's wanting for capital investments. I was there— you know, again, I have a lot of ideas. I thought that we ought to say we would guarantee the sovereign risk if the private sector of the United States would take capital and develop hydroelectric power in places like Kyrgyzstan and Uzbekistan, which I thought was a nifty idea, because it was good economics, the hydroelectric power would be valuable, it would be good to help them develop their own economies, and it would make them a more reliable ally of the United States if we could be shown to have an interest to helping them develop the state of their society, too. You know, it seemed to me like it was a winner in every way. But you know, I was— I'm a bad salesman or something, even for what I think are good ideas.

PETERSON: Oh, in that same book, there was the comment that the vice president allegedly made, that "Reagan proved that deficits don't matter." What is the process by which that judgment was reached? And do you think the president shares that view, or what?

O'NEILL: Well, from the evidence we have, I would say I guess so.

PETERSON: Do you consider that a softball question, incidentally, or is that—

O'NEILL: [Laughter] No, and I'm going to answer it more fully. I tell you, I've thought about that comment a lot, because it was just made to me in such a flat-footed way, that "Reagan proved deficits don't matter." And I've tried to figure out how that could possibly be said. And I think there is a way that you could say that.

I think it's probably true that from a political point of view, at least in the short term— and that means for one term or two terms— deficits don't matter, you know. I don't see people in the streets over the deficits that we have or the prospect we have for deficits. And so in a political context, I think you could say, with a straight face, "Deficits don't matter." I think, in an economic sense, that's loony.

You know, I do think it is true— and we've demonstrated it— that a sovereign state has a balance sheet potential for borrowing substantial amounts of money as long as the lenders believe the prospects are very good that they're going to get paid back. I think that's a demonstrated fact. But I also think it's a demonstrated fact that while government may be able to escape economic truth-telling and reality for a period of time, I don't think it's forever. And I do think seemingly out of control or unmanaged growing deficits will end up hurting our economy, because it'll drive up interest rates, it'll make us a less interesting place for other people to invest.

And yeah, I think we can run deficits. I would frankly prefer that we only run deficits in economic downturns, and the rest of the time, we should run surpluses. It's, you know, my ideal state of affairs.

PETERSON: OK. You were very close to the Argentina situation, and you watched it more or less implode, I guess. What lessons should we learn about how we should handle crises of that sort?

O'NEILL: Now there's a real softball. One of the reporters asked me on the way what did I think about what's going on in Argentina. I tell you, I went with a conviction— and this is from having worked in, you know, maybe half the countries around the world and getting— got to know the leaders and gone to favelas [squatter settlements] in Brazil and to the slums in Soweto [South Africa] and, you know, to a lot of different places in the world, and building a conviction over a 40-year career about what was right and wrong in the world. And so I came with a conviction both about the IMF [International Monetary Fund] and the World Bank, and about what had been going on. You know, in my confirmation hearing, they asked me what I thought about the [former Treasury Secretary] Bob Rubin bailout of Mexico [in 1994], and I said it was OK. But the reason I thought it was OK is because we got our money back, not because we made a contribution.

And so I came with a conviction that we'd kind of gotten off the track in the way we think about international financial affairs. And I'm not sure, Pete, even you and I are together on this, but I really do believe that when there's a tsunami or some horrible event like that, that the world should come together. And where a sovereign government is in serious trouble as a consequence of something like that, I think there should be a safety net and a way to help them financially.

But I also think that it's time for us and for the rest of the civilized, organized world to say to nations around the world: "One of the first duties of a responsible government is to be fiscally sound."

You know, just parenthetically, I said this to a group of finance ministers: that your objective should be to have investment-grade debt. And a lot of them said to me, "What is that?" [Laughter] And so— honest to God. So we organized a conference at the State Department while I was there, and we invited finance ministers from all over the world to come out— come and find out what is investment-grade debt, you know. They didn't know that was something they maybe ought to be pushing toward. Now, I'm exaggerating a little, but not a lot, honest to goodness, this is true. So I came to this conviction that responsible nations that we should want to deal with and help in some ways should have an objective of being financially responsible. The ideas of being poor and being financially responsible are not exclusive of each other, and I think we should insist on that. It doesn't mean we should be happy to leave people in a poverty state and financially sound. But if a government's really going to be a government that you can count on and invest in going forward, they need to meet the minimum test of financial soundness, even if it's a very low level of economic existence.

So I came to this notion, and right away we have Argentina, we also had Turkey, and we had Uruguay a little bit later, so we had a lot of these things. And I came to the notion and said we should not twist the arm of the IMF to do the bidding of the U.S. to go sinking more money into places where they haven't demonstrated reasonable financial stewardship. And so when the first proposition came— I think it was for $8 billion— and I said, "I think we've got to do this," because I was really confident that my proposition was right. I didn't think we could change the terms of trade overnight with the first case. So I said, "Yeah, OK, I think we ought to do a little bit more." And this was in April of 2001. In late August— I'll never forget— the president called me; I was at the beach in Delaware. We had a conversation. I talked with [former Secretary of State] Colin Powell and [former National Security Adviser and current Secretary of State] Condi [Rice]. And I said, you know, "I think we've got to do one more round, and then we need to say to them: 'This is it, we're not doing any more,'" which we did.

I have to tell you, I'm very pleased with how this has worked out. I hope some of you from the financial community didn't get personally burned by what the Argentineans did. But I believe this— again, it's a fundamental principle— that people who invest in sovereign debt in places where the leadership is irresponsible ought to accept the consequences, they shouldn't expect to be bailed out by the taxpayers of the world, which is what the IMF is, as though they have some preferential credit standing. You know, one of the things that had been going on, at least I thought it was going on, is the IMF was making sure that financial institutions that put huge amounts of money with 25 [percent] or 30 percent coupons on them, and sometimes $50 million finder fees for a hundred-million-dollar loan, and they expected to be held harmless when the sovereign couldn't service the damn debt, and they all thought that was right. I thought that was nuts, you know? So I love the fact that the Argentineans basically wrote their debt down to their carrying capacity going forward, you know, so they have a chance. Now, if they screw it up again, tough luck for the people who put their money in there. People, be warned, you know, if you make an investment in a sovereign government that doesn't meet its responsibilities, that's your tough luck.

PETERSON: Well, the time has come for questions— from answers. But I have— from the audience here.

O'NEILL: Do you want to argue with me about—

PETERSON: No, no. You've been— no, no, that's not my role here. You've been very outspoken about some of your stupid, I guess is the word you used, things you've done. In retrospect, was going to Africa with [singer and political activist] Bono a great idea or not such a good idea? [Laughter]

O'NEILL: I tell you what, I need to tell you a little bit about how that happened. Staff came into me and said— this is maybe in April of 2001— Bono wants to come and see you. And I said, you know, "I am really busy. I don't have time to entertain rock stars." And they said, you know, "But he's seen Colin Powell and Condi; he's probably even going to see the president." I said, "I don't care; maybe they've got the time; I'm too busy." [Laughter] You know, so they came back to me in a month or so and said, you know, "Bono really wants to meet you." And I said, "OK, I'll give him 15 minutes." And I'd spent a lot of time in Africa, and I don't mean as a tourist, I mean as an investor and an operator of business in Africa. So I didn't have too much patience with a rock star who's going to come in and use me for a ballerina box, you know. [Laughter] And so he came in, and he had [inaudible] with him. And we sat down, and in 15 minutes he convinced me he was the real article. It turned out in 1986 he and his wife went to Ethiopia, before he was very famous as he is now, and they lived in an orphanage in the outback of Ethiopia to find out what life was like for those people. His conviction doesn't come from his celebrity, it comes from— he knows what he's talking about.

So I said to him, "You know, Bono, I know a lot about Africa. It sounds to me like you know a lot about Africa. How about if we go to Africa together and you can show me things you don't think I know about, and I will show you things you don't know about." And so we agreed we would do that in October of 2001. And then we had September 11th, so we had to postpone it. We went in May. We went on May the 18th of 2002. You can tell I thought this was pretty important, Pete.

Why did I think it was important? Because it was a way to bring attention to the plight of people in the world that, for too many of us, there's a blind spot. We don't know about what it's really like. And so, you know, I didn't want to [go to] the five-star hotels. Yes, I've stayed in some of them. But I wanted to go to the clinics, and I wanted to go to the schools under the banyan trees and see what life was really like and show it to Bono and convince him that his focus was too narrow, because when he came to see me, it was all HIV/AIDS. And I said to him, "You don't understand how awful it is where half of the population— that is to say, the women— spend an enormous amount of their time carrying water from the river five miles away every day, and when they get back to their place, it kills 2-1/2 million of their children every year because they get diarrhea and die from it, and that's an important problem, too. And as a matter of fact, we're probably not going to make a lot of progress with HIV/AIDS unless they have at least a little bit of clean water." You know, I think I converted him about water, I really did. He didn't need to convert me about HIV/AIDS; I already knew about that.

And so we did call attention— you know, I love the fact the media went with us. Yes, I wore the stupid [inaudible]. Actually, it wasn't stupid. I should say this carefully. This was a tribal stuff, but on me it really looked stupid. [Laughter] You know, but we got blasted all over the media all over the world for 10 days in a row, and we buried everything else. You know, we were the story, the odd couple, which I was grateful for that designation, because it let us bring an important image to the people of the world I think they otherwise wouldn't have gotten.

PETERSON: We'll turn to the audience now. But on this one, I'm even more stupid than you are, because he asked to see me, and I saw a note, "B-o-n-o wants to see you." And I said to my assistant, "Who is Bono?" I have never been so ridiculed in my life by anyone. OK, let's turn to the audience. Yes?

QUESTIONER: I'm Lucy Komisar. I'm a journalist. You testified in 2001 at a hearing of the Senate investigations of— the Permanent Subcommittee on Investigations of the Committee on Intergovernmental Affairs. They were talking about the U.S. position on off-shore tax havens. And at that point there was an OECD [Organization for Economic Cooperation and Development] proposal for an exchange of information. And you said then that you were puzzled because, you said, "I'm sure you know we do not tax investment interest-income for foreign-based individuals in the United States, and I wonder what that looks like from the other side."

Now, the Europeans, through the EU [European Union], have been dealing in the last few years trying to get an agreement, now have an agreement, not totally implemented, on either exchange of information or a minimum tax on investment income by foreigners. Do you think the U.S. should become part of that and not be the odd man out and not tax investments for foreign-based individuals nor give information about them? Do you think the U.S. should be part of this operation in order to deal with this huge problem of international tax evasion, and the first step might be to join in with our European partners who are already working on this?

O'NEILL: All right. Was this a House hearing or a Senate hearing? Was this with Senator [Carl] Levin [D-Mich.]?

QUESTIONER: Yes, it was a Senate hearing.

O'NEILL: Yeah, it was with Senator Levin. Well, let me tell you a little bit about that because there's more to that story. What he pointed out to me, is he had been working— this is a favorite issue of his— he had been working on it for 15 years. And the U.S. had treaties for exchange of information with maybe 10 percent of the countries. The ones that were the most important were the Caribbean countries. We had treaties with maybe 10 percent. So you'll understand this, given what I've already said to you. I said, "You know, it's remarkable; you've been working on this for 20 years and only got 10 percent of the treaties. We will get to 80 percent in the next two years." And he said something like, there's no way you could possibly do that. But we did. And I got a little card from him when I left, on his Carl Levin note card, saying, "I owe you a dinner." You know?

So do I believe we ought to have a close cooperation and exchange of information to make sure that people who have tax obligations in the United States fully discharge them? You bet I do. But again, this is an— yeah, I use it as an example of what can be done by government, but is done too infrequently. Yeah, I told you of the Alcoa safety statistics. When I went— when I had my transition breakfast with [former Treasury Secretary] Larry Summers, after we spent an hour and a half talking about international affairs and economics and all that, I said to him, "Larry, what's the lost workday rate at the Treasury?" And he said, "I don't know what you mean." That's symptomatic of the government. Actually, I said to the president early on, "You know, Mr. President, I know how we could make the federal government the safest workplace in the world." And I couldn't get him interested in that. So I went and worked on the Treasury. While I was there, we reduced the injury rate at Treasury 50 percent in two years, you know?

So I think it isn't true that the government can't operate at a really high level; it's a question of expectations and measurement and creating results. And so, you know, they've been having hearings for years, and, you know, throwing bombs at each other about, you know, we're not doing the right thing about tax havens. Well, what the hell, you know? In two years' time we got to 80 percent, and they may be higher than that now, I haven't kept up with that statistic. But yes, I think we should not let people get away with avoiding their tax obligations.

PETERSON: OK. Other questions. Well, I've got—

O'NEILL: There's one over here. Please.

PETERSON: Yes. Please.

QUESTIONER: Yes. Jim Traub from the New York Times Magazine. I actually have another Bono-related question—

O'NEILL: OK.

QUESTIONER:--which is, when you came back from that trip, my understanding is you tried very hard to get some pilot projects going in a number of these countries, and completely failed. So, I'm wondering, how— now that you look at the policies the Bush administration has in terms of development assistance, debt relief, AIDS, and so forth, how would you say they're doing; what do you think they ought to be doing?

O'NEILL: I was a great believer in the idea of the Millennium Challenge Accounts. I have to tell you, now, again, you'll understand this in the context I just gave you. You know, I don't— I have not— where I've had any ability to make decisions, I have not lived in a world that says it's OK, I have an idea, and then four years later you haven't spent any money. I don't— I don't understand that, you know? And it makes me furious when I think about the hundreds of millions and billions of people that could be helped by our demonstrating what I believe is true: that for relatively small amounts of money, people all over the world could have clean water. I think it's unforgivable that we and other mature nations don't seize a goal like that and do something about it, you know? And all the— all the naysayers will tell you, "Well, you don't understand, you have to do it in the right context and you got to train the people how to maintain the water system, the pump, even if it's a simple hand pump, you"--I know. So what, you know? If you could do it and you could save millions of lives and add length to meaningful lives with hope, why the hell wouldn't you do it?

You know, it's why— [World Bank President] Jim Wolfensohn thinks I'm not his friend. But, you know, I never had a negative feeling toward Jim Wolfensohn, I just wanted him to pick up his game, you know? You spend hundreds of millions of dollars a year, let's have goals so next month in the New York Times Magazine, every month we report how many million people have clean water this month that didn't have it last month. Not 15-year Millennium Challenge goals. What the hell is that about? You know, 15 years from now, no one will remember what they were and we won't have done anything.

PETERSON: You do know we're on the record.

O'NEILL: I know that. [Laughter] That's why I said I want to be on the record. I didn't want to be misquoted. [Laughter]

PETERSON: OK. Thank you.

QUESTIONER: [Inaudible] Morgan Stanley. I'd like to change the conversation from water to money.

O'NEILL: OK.

QUESTIONER: The dollar has been headed down for a couple of years. We're running a $700 billion trade deficit. It looks like it's going to be larger every year as far as the eye can see, and it looks like the dollar is going to be weaker for every year as far as the eye can see. The administration, in my mind, is doing nothing about it, doesn't seem to be concerned about it; talks about a strong dollar policy but doesn't take any action.

Second, on energy, the price of oil is likely to continue to rise, probably will break 60 [dollars] soon, will keep on going higher, per barrel. In 1973-'74 and throughout the 1970s, we engaged in a fairly vigorous conservation policy. We have nothing like that now. We seem to be perfectly willing to let the price of oil go up without doing anything about it and the value of the dollar go down. Do you have any comments about whether the administration is acting properly in these two instances?

O'NEILL: There's a real softball question. A couple of things: First of all, on the trade deficit and current account deficit. You know, one of the things that I went to the Treasury with a conviction about, is that a lot of the ideas that we have to think about economic affairs are worn out. And what I mean by that is this: If you go back and look at where did the ideas of current account, the national income account and all of that come from, it came from [economist] Simon Kuznets and a group of really smart people in the late '30s and through 1940, really good ideas. I would argue that those ideas were much more appropriate to the conditions that existed in the world then than the conditions that exist in the world now.

And again, Pete, you may not agree with this, but I think more and more the world is truly one place, at least for me when I was at Alcoa, and a lot of people that I knew in the business community were doing what I was doing. We were growing around the world, and not so that we could make things with cheaper labor and send it back to the United States, but with a conviction that really first-rate companies and enterprises, if they wanted to continue to be first rate, they needed to be of the world, not of a place.

And so, you know, when I borrowed money or when we raised equity capital, it came from all over the world. And where did I take it? I took some to Russia, I took some to Brazil, I took some to China, I took it a lot of different places. You know? So it's hard for me to draw myself back into saying, "Well, but you're an American company." Not really. You know? I'm an American-based company, but that's different from being a nationalistic silo person in the way you think about the world.

And I tell you all that from a personal point of view, because I think there's an awful lot of capital in the world that thinks about the world the way I just said to you. They don't ignore profligate governments and irresponsible governments. And I think there is a price to pay, and I think it shows up in the way economic affairs are organized today, if a government doesn't seem to be very interested in fiscal responsibility and have a plan of attack to ensure fiscal responsibility, and a— I would argue a stable dollar is more important than a high dollar or low dollar. A stable dollar is a really important thing because it gives people a basis to make decisions and have some confidence about not losing for a bad reason, which the currency movement's a pretty bad reason.

But even having said that, in today's financial [inaudible] pretty interesting. I found I was able to basically hedge away sovereign risk related to currencies. It wasn't easy, a pretty complicated process, but I could do a lot to protect myself against the willy-nilly activities of different governments over different periods of time.

The energy thing, I think again, is an important question. And my answer again is partly a foreign policy, economic answer. I think as we think about energy, we should think expansively about it. And by that I mean every barrel of oil that we can free up from use in Western Europe is an additional barrel for our account.

So again, let me take you back to— let me take you to Ukraine. Ukraine has a transnational pipeline that connects the Russian gas fields to Western Europe. And the leakage in that pipeline is beyond belief, 20 [percent], 30 percent, because of cracks in the pipes and leaky valves and all the rest of that. We did a little "back of the envelope" work that said it was a no-brainer investment to put modern pumping technology and valves on that pipeline and you could increase the throughput 50 percent— a huge amount of additional gas. It would be good for Russia. It would be good for Ukraine as the transport provider. It would be good for Western Europe, because it would reduce their dependence on oil and coal. I tried to sell that as an idea that it's something we in the administration ought to advance to the investment community as a way of dealing with our own energy problem.

You know, the more we can help the world develop intelligent things that reduce— ideally, starting with coal, oil, natural gas, back toward hydropower and nuclear energy, and eventually hydrogen, I think, the better off we're going to be, you know? So I see these things all needing to be tied together and thought about in one context, and not as separate issues.

And again, I think, for me, our foreign policy needs to be more about economic development, you know, not in some kind of sappy altruistic sense, although that's OK with me, too, but because it's the right thing to do, and it'll help us a hell of a lot with creating real friendships around the world if we can work on a basis that's good for everyone.

PETERSON: OK. Other questions? Yes, in the back there.

QUESTIONER: [Inaudible] from Bloomberg Television. A follow-up to Byron's question: We not only have energy hitting new highs, we have many other commodities as well. How concerned are you in terms of the impact that's going to have on an inflation level to the consumer and big corporations?

O'NEILL: Commodity prices?

QUESTIONER: Being higher, yes.

O'NEILL: I think, you know, for— having been in commodity businesses for 25 years, I've got to tell you, people are in the commodity businesses if they have— if they— they need to live through both an up cycle and a down cycle. Usually the down cycles last a lot longer. Yesterday, I noticed the London Metal Exchange cash price for aluminum was $2,001. I won't tell you when, but it won't be too long from now— no, I need to do this right.

While you're still writing your column or doing your television, you'll see $1,200 again, you know, which we last saw a couple of years ago. These are really interesting businesses, you know, and I would include forest products and chemicals and energy and all the rest. They all go through these cycles, you know. And some people never seem to get it, you know? If things are, in quotes, "really good" for the producers, the consumers are all bellyaching about, you know, "We can't pass these prices through." And so there's always an immoderate expansion in the available capacity. And things cool off a little bit in the economy someplace, and then the price— clearing price is the cash cost of the lowest-cost producer until the economy picks up a little bit, and then you see a dwindling of overproduction, which got stored all over the world, for things like aluminum.

You know, there was a time when there was so much aluminum on the docks in Europe that you could see it from a spy satellite. Actually, you could see if you were flying over at 35,000 feet. There was so much aluminum stock. There were over 2-1/2 million tons of overhang from current production. People kept making it. Unbelievable. You know, so am I worried? No. It's OK. It'll get straightened out. You know, economics really works. Low-cost producers have an excellent chance of surviving. Everyone else needs to be scared for their life.

And people who— you know, it's interesting. One of the reasons that capacity doesn't go away generally in these industries is because there's always some fool who thinks if they can buy in a down cycle and not pay anything for the capital costs, surely they can make it on the variable cost only, and they keep producing. That keeps commodity prices from getting completely out of hand. There are always some people who haven't experienced economics yet. So no, I'm not worried about commodity prices. God bless the [laughter]--

PETERSON: One final question, and then we'll— over here, please.

QUESTIONER: Hi.

O'NEILL: Hi.

QUESTIONER: C.J. Juhasz, Deutsche Bank. Obviously you have a strong interest in Africa. And I'm wondering, you know, having missed Rwanda and Algeria, if anything can be done about Darfur [in the Sudan], or if genocide is never going to make it to the top of any political agendas.

O'NEILL: You know, I don't have a nifty answer for the kind of in-your-face current problems that exist in places like that. But I think— you know, people who think about how we should organize our affairs, I really do think, need to buy the notion that we need to help the world develop in ways that is good for the people of the country. And the more we can help people to raise their living standards, the more these kind of horrible things are going to be avoided.

I tell you, one of the— may I finish on a happy note? One of the great privileges I had in traveling around the world was to see some really interesting things. Bono and I went to a village in Uganda, and it was under one of these big African trees. And they set up a little canopy so in case there was a rain shower, we'd be protected from the rain. And there were all these beautiful children there. Maybe there were 50 or 60 of them. And this was in the good part of the year, where they didn't have to spend half a day carrying their own water from the dirty river four miles each way every day. So they were there, and they sang for us. And they invited us to give speeches. Bono sang, a capella, "A Long and Winding Road." It was a wonderful, moving moment.

And then this young girl got up, who was maybe 13 years old, and she gave a speech for 12 or 15 minutes. She didn't have a single note. It was absolutely wonderful. You know, it was as crystal clear in presentation and expression as you could find in the best school in the world. And, you know, it renewed my feeling that it is possible for people all over the world to have that experience and not be unique. And, you know, that's the kind of thing that keeps me from retiring, which my wife keeps saying to me, "What you're doing is not retirement." [Laughter] Thank you all. [Applause]

PETERSON: Thank you.

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