Key US agencies battle over Iraq reconstruction

WASHINGTON -- Paul Brinkley, a deputy undersecretary of defense, has been called a Stalinist by US diplomats in Iraq. One has accused him of helping insurgents build better bombs. The State Department has taken the unusual step of enlisting the CIA to dispute the validity of Brinkley's work.

His transgression? To begin reopening dozens of government-owned factories in Iraq.

Brinkley and his colleagues at the Pentagon believe that rehabilitating shuttered, state-run enterprises could reduce violence by employing tens of thousands of Iraqis.

Officials at State counter that the initiative is antithetical to free-market reforms the United States should promote in Iraq.

The bureaucratic knife fight over the best way to revive Iraq's moribund economy illustrates how the two principal players in the reconstruction of Iraq -- the departments of Defense and State -- remain at odds over basic economic and political measures. The bickering has hamstrung initiatives to promote stability four years after Saddam Hussein's fall.

Under pressure from Congress to demonstrate progress on the ground, the military favors solutions aimed at quelling violence. That has prompted objections from some at State who question the long-term consequences of that expeditious approach.

In recent months, the two departments have squabbled over the degree to which Iraqi farmers should be aided by subsidies and tariffs.

They're also at odds over State's desire to deploy reconstruction teams to two Shi'ite-dominated provinces in central Iraq.

"There has been a surprising degree of venom and hostility" between the departments, said a senior US government official involved in Iraq policy.

The dispute between State and Brinkley has become so pitched that he has effectively stopped working with the US Embassy and is setting up his office elsewhere in Baghdad's fortified Green Zone.

Brinkley, who was interviewed in Washington, said he expects several factories to reopen this summer. By year's end, he envisions Wal-Mart stores selling made-in-Baghdad leather jackets and other US retailers stocking Iraqi loafers, hand-stitched carpets, and pinstripe suits.

Disagreements among Americans about how to deal with Iraq's government-run businesses began shortly after US forces arrived in Baghdad in April 2003. The first US adviser to Iraq's Ministry of Industry and Minerals, retired ambassador Timothy Carney , wanted to reopen many of the country's 192 state-owned factories, which employed more than 500,000 people before the war.

The US occupation administrator, Paul Bremer, deemed that to be bad economic policy. Many factories had produced substandard goods before the war and had since been looted.

Fixing them would cost hundreds of millions of dollars. Bremer wanted private investors to buy the factories.

But the hoped-for private investors never arrived and factories remained shuttered. Some former workers found new jobs. Others, US military officials believe, joined the insurgency.

In the early months of the occupation, the State Department wanted to resuscitate the state-owned enterprises; the Pentagon's civilian leadership, dominated by neoconservatives, rejected the idea of supporting government-run industry.

By last year, the positions had been reversed. Military commanders began arguing to restart the factories, even as a new crew of embassy economists, some of whom had been scarred by dealings with state-run firms in Eastern Europe, disagreed. Because State was now running the show in the Green Zone, its opposition carried the day.