Daring economic experiment has this city still catching its breath

Tom Davis has only three employees. His innovative product - a superhard ceramic pipeline lining - is just beginning to sell. And on this morning he put together a large industrial fan himself.

But Mr. Davis, president of Certec, is already talking about future possibilities. His company is a bright spot in a daring civic experiment that this central Indiana city is still talking about.

In its wilder moments, the experiment involved a plan to build antique cars for Arab sheikhs; childproof bottle caps; an enthusiastic but somewhat disliked director; frozen rubber; a wealthy Iranian engineer; and general civic exhaustion by the time it was over.

From it all, Anderson, Ind., has begun to answer a crucial question: What is a city's role in reviving its economy?

Two years ago, this was a city in crisis.

Manufacturers were leaving town or going out of business, leaving more than 1 million square feet of vacant industrial space. Two General Motors divisions, which employed fully a third of the city's work force, had begun layoffs. In a few months, Anderson would make headlines with the nation's highest unemployment rate.

''We were desperate for a victory,'' recalls one city official.

The city had already created the Anderson Business Development Corporation (ABDC) to spur business and create new jobs, but its efforts had failed. Large manufacturers didn't want to relocate. Attempts to home-grow small companies didn't work either.

So, the city decided to try a different tack. Under a new director, Richard Haines, and with money from the sale of a donated industrial plant, ABDC aimed to bring small, innovative companies to this car-part-making town. ''ABDC was out on a limb, and we knew it,'' Haines admits, but he could see no alternative. Large manufacturers had avoided the city, partly because of its high degree of unionization - more than 90 percent for manufacturing jobs - and its history of labor trouble, Haines says. Only one large manufacturer had located in the city within the past 10 years.

Haines came up with an array of prospects - including such things as air disc-brakes and a process to deep-freeze used auto tires to make superhard rubber.

''It was big-time,'' recalls Bob Reitz, then an ABDC board member. ''(Haines) would call me up at 10 in the morning, any morning, and ask: Was I available for lunch at the country club with an Iranian engineer?'' (The Iranian, in exile in Paris, wanted a controlling interest in an US company so he could establish residency.)

None of these projects panned out (although the used-tire idea - without deep-freeze technology - is still in the works). But by January 1983, the approach looked like a winner. ABDC helped fund two ventures - Replicar, a new company planning to build replicas of antique Auburn autos for export to the Middle East, and Ucrete, an uncapitalized Kokomo, Ind., company with a new machine to solidify and stabilize hazardous wastes.

Soon after, a computer-aided design company was started with help from the city's revolving-loan fund. Most important, a statewide insurance carrier agreed to locate a 400-employee facility in Anderson if it won a Defense Department contract for military health insurance.

''We seemed to be on a roll,'' one insider recalls. But almost immediately, the luster began to fade.

Replicar, which Haines had urged ABDC not to approve, folded ingloriously. Its Arab market evaporated because of plummeting oil prices. In April, the Indiana insurance company didn't win the military contract, leaving ABDC stuck with a $40,000 bill for clearing two floors of office space and for architect's plans. There were internal problems, too. Already disliked by some board members , Haines had lost three valuable community backers by April. And a new board member, scrutinizing the books, found Haines had spent a bundle.

ABDC had screened potential companies with a feasibility study and then followed up on good prospects with an independent business plan, both paid for with ABDC funds. Haines didn't need prior approval for those expenditures or for the projects he went after. Under him, 18 company studies or plans were financed. Another $282,000 in loans and outright payments were made to Replicar and Ucrete in exchange for a share in the companies. Total costs: $600,000.

In return, ABDC had brought in two new companies besides Replicar - Ucrete, and Certec. Total jobs: 13.

Haines resigned in April, ending Anderson's wild ride in technology development.

Did it succeed? Mark Lawler, local Democratic committee chairman, calls it disastrous. Haines says new ventures need time. In two years, Ucrete and Certec are projected to create 40 jobs.

Anderson has not completely ignored traditional development efforts. This summer it gave tax abatements to both GM divisions and hopes to help a replacement-battery company finance an expansion. Phase one of an 80-acre industrial park is finished. And, officials say, the city has learned some hard lessons:

* Get outside expertise - local officials can't assess local weaknesses. Last month, ABDC hired the Fantus Company, a Chicago consulting firm, to do a $50,000 study of Anderson's economic potential. ''In hindsight, we should have had the Fantus study three years ago,'' says Robert Kamm, program manager of the Anderson Downtown Development Corporation (ADDC).

* Streamline decisionmaking. The ADDC and ABDC had too many similar goals and 25-member, volunteer boards that proved cumbersome. The two will be merged, directed by a nine-member board, and become a private entity able to meet out of the public limelight.

* Don't rely exclusively on volunteers. Anderson's volunteers were overworked and couldn't provide a continuity of decisionmaking. The city now plans to have its own four-member development team.

* Be prepared for failure. ''The job of economic development is terribly difficult,'' says Stephen Abbott, former ABDC president, especially since 80 percent of all new ventures fail anyway. Still, city government should limit involvement in high-risk projects, Mr. Kamm says.

* Out-of-town prospects should be offered city help only if they produce and sell a product, have a recognizable market, and are well-managed.