Economic Slowdown: Treasury Department: Paul O'Neil: Turnaround Guy

At a NASDAQ board meeting in Manhattan last month, a visitor approached a compact, white-haired guy who looks as if he belongs in a college chemistry lab and asked if he was thinking about a top job in the new Administration. "No way," replied Paul O'Neill, with a smile. "I'm too old." O'Neill, 65, allowed as how he might consider running a task force on something really messy and complicated, such as fixing Social Security. But having spent the past 23 years running Alcoa and International Paper, O'Neill and his wife Nancy Jo were looking to step back and enjoy life for a while.

That only partly explains why O'Neill had to be coaxed into taking the job of Treasury Secretary. The other reason is that O'Neill didn't know George W. Bush well. So the two men, joined by Vice President-elect Dick Cheney, had lunch in Austin three weeks ago. O'Neill told friends later that Bush and Cheney made him feel like an instant insider, and he was happy the conversation had been so candid.

They will need to keep that conversation going, because in the 10 years since the fall of the Soviet Empire, the Treasury Secretary has vaulted past the Secretaries at State and Defense in Washington's pecking order. Our national security is increasingly defined by economics: America now defends currencies more often than it defends borders, and its stability has been threatened as much by Russian hedge funds as rogue Russian nukes. But O'Neill's immediate task is to translate still nascent Bush economic policies to lawmakers and financial markets at a time when the engine of the world economy is downshifting. "He has been getting ready for this all his life," said Frank Zarb, chairman of the NASDAQ. "He is honest, straightforward and has a good, hard mind."

Returning to Washington, O'Neill will find himself with new problems but also old friends. O'Neill met Fed Chairman Alan Greenspan back in 1969, when both men worked as junior aides in the Nixon White House, and has stayed in touch ever since. O'Neill was such a whiz at mastering the details of Medicare and Social Security that Gerald Ford's White House chief of staff, a young guy named Dick Cheney, promoted him to deputy director of the Office of Management and Budget. By 1975, Cabinet officers like Donald Rumsfeld, the once-and-future Pentagon chief, were trudging hat in hand into O'Neill's office.

O'Neill left government after Ford lost in 1976 and spent 23 years turning cyclical smokestack companies into sturdy profit centers. He first worked his way up the executive ranks of International Paper by boosting the quality of its products, shutting down marginal plants and investing heavily in others. While working at IP in the dark days of the late 1970s, O'Neill made a habit of visiting the plants of competitors overseas that were stealing market share, and then bringing back ways to beat them at their own game. In the late 1980s, he took over as CEO of Alcoa, a company that had just about given up on aluminum as a reliable line of business. But O'Neill refocused Alcoa on its core products, made a huge push for workplace safety, sold its corporate aircraft and hacked away at decades of hierarchy to help encourage ideas from the bottom up. He worked out of a 9-ft. by 9-ft. cubicle on the top floor of the Pittsburgh, Pa., headquarters. "It's a pretty nice cubicle," said a friend, "but it's still a cubicle."