By STEVEN LEE MYERS


BAQUBA, Iraq - The Diyala State Company for Electrical Industries here staggers along, making transformers, spark plugs, ceiling fans and steam irons that few want or can afford anymore.

Its labor force has tripled in size, even as production has slumped. A deal to lure $60 million in foreign capital - one of only a handful of foreign investments in Iraq’s state-owned industries - collapsed. The American government recently gave the company $2.5 million to keep its main production line operating and its workers out of penury and, perhaps, insurgency.

The United States and Iraq will gather officials and company executives for a conference on October 20-21 in Washington intended to send a message that after six years of war, Iraq is open for business, and not just in oil. Now more than ever before, Iraqi officials boast that a trickle of foreign investment - including the first new hotel in Baghdad since Saddam Hussein’s government fell - is at last poised to be a flood.

The experience of the company here, though, shows that economic development and foreign investment face more obstacles than security alone.

The state-owned industries that dominate the country’s economy - from oil fields to dairies to textile factories - are as bloated and inefficient as they were under Saddam, arguably more so. They are hobbled by corruption, still sporadic electricity and poor roads and bound by bureaucracy and central planning that leave them unable to compete with a flood of cheap imports from Iran, Turkey and beyond.

New legislation intended to regulate investments, land rights, taxes, financial services and consumer protections remains stalled in Parliament. The mere mention of the sort of privatization that swept Eastern Europe and the former Soviet Union after the collapse of Communism is anathema to officials here.

“We are not after shock therapy,” Sami al-Araji, the chairman of Iraq’s national investment commission, said in an interview. “We are after a gradual change from a centrally controlled economy to an open one.”

Prime Minister Nuri Kamal al-Maliki publicly pressed Vice President Joseph R. Biden Jr. last month about “the need for this conference to be a success.”

Privately, though, American officials express concern that it will be little more than a political exercise before Mr. Maliki’s re-election campaign unless the Iraqis do more to create a solid foundation for foreign investors willing to take a risk on the country’s prospects.

Mr. Biden, in his meetings with Mr. Maliki and other senior leaders, stressed the need for better regulatory and financial systems, according to a senior official traveling with him.

Few, though, expect the investment legislation to proceed before next year’s parliamentary elections, putting off significant reforms, and thus investment, for at least a year. “Capital is cowardly,” said Mejul Mahdi Ali, the president of Diyala’s newly created investment commission. “It is always looking for a safe place.”

As he spoke, an explosion reverberated through Baquba; a roadside bomb killed three police officers.

Mr. Ali complained that many government ministers had showed little interest in foreign or private investment, or even actively opposed it. The provincial government’s idea of economic development, he said, is a plan to buy 10,000 taxis and lease them to drivers, against his advice. Baquba might soon be the easiest place in the world to catch a cab, but he said, “That’s not investment.”