On Iraq, U.S. Turns to Onetime Dissenters

"Who's going to coordinate this?" Bush asked as he read through the economic initiatives, according to two people with knowledge of the meeting.

When Satterfield got back to his State Department office, he told his staff to "give me names."

The next day -- less than 36 hours before Bush addressed the nation -- Satterfield called Carney.

Idle Factories, Idle Workers

Before Carney left Iraq in June 2003, he tried one last time to persuade Bremer to rethink his refusal to repair more than a handful of state-owned factories. Iraq's government-run businesses employed more than 100,000 people before the U.S. invasion. To Carney, it was a no-brainer: Fixing the factories would allow thousands of Iraqis to get back to work, not only allowing them to provide for their families, but also keeping them occupied. He knew from his time in other post-conflict societies that the idle and unemployed are the best recruits for insurgencies.

But Bremer and his chief economic adviser, Peter McPherson, didn't want to pour money into inefficient state-run firms. They believed private investors would buy Iraq's government factories and set up new businesses to employ the populace. So they refused to give Carney money to reopen the plants.

The day before he left, Carney sent a note to McPherson titled "Fatal Flaws in Budget Policy towards State-Owned Enterprises." He argued that the CPA was violating the Geneva Conventions by undermining "assets of the Iraqi people." He also accused McPherson of drawing up policy "without adequate Iraqi participation."

"Instead of transparency, with major concerned Iraqi Ministries and academics engaged," he wrote, "the policy seems to be the thinking of a small group in the Coalition Provisional Authority."

"We need to rethink this," he wrote in closing.

Petraeus also opposed the immediate privatization of state-run firms. "What happens when you have privatization is . . . you end up with a hell of a lot less workers in the short term," he told an interviewer in 2004. "If you want to increase unemployment en route to greater employment and greater productivity and greater a lot of other things, that's great, but you've got to survive in the short term."

For almost three years, the policy didn't change. Although the Iraqi government reopened a small fraction of its 148 factories and began operating them at a diminished capacity, the efforts to sell them to private investors were unsuccessful.

When Lt. Gen. Peter W. Chiarelli, at the time the top U.S. field commander in Iraq, sought to increase production at a state-owned tractor factory south of Baghdad early last year, a State Department official in Baghdad refused to pay for the necessary repairs, even though the rehabilitated facility would have been able to provide employment for many of the 10,000 people who worked there before the invasion. Chiarelli used money from a different program -- for small-scale reconstruction projects -- to fund the construction.

It wasn't until June that the Bush administration began to reevaluate its approach. Paul A. Brinkley, who had recently taken over as deputy undersecretary of defense for business transformation, returned from a trip to Iraq convinced that quelling violence depended on increasing employment. To Brinkley, a former corporate executive, the most effective way to create jobs was to reopen state-run factories.