Davao. Blueprint for a communist takeover.

The Philippine's third largest city is a laboratory. The communist undergound is testing out its three-stage strategy to topple the government of Ferdinand Marcos. Superb organization and the course of events are working in the rebels' favor. The economy is collapsing and poverty is spreading. President Marcos's health is faltering and the military is in disarray. And since the killing of oppostion leader Benigno Aquino in 1983, Filipinos have been taking their outrage into the streets. The experiment in Davao is going very well, rebels say. They claim the groundwork has been laid for their next stop: Manila.

As this city's guerrilla warfare escalates, the insurgents, for the moment at least, seem to have the edge.

They are perfecting their strategy while the government of Ferdinand Marcos is still groping for a response to the communists' tactics.

``Davao is our blueprint,'' says a cadre of the underground Communist Party of the Philippines (CPP). By 1990 the party plans to bring about the complete breakdown of local government -- known in party jargon as the ``mass defection'' of local administration -- in major Filipino cities. It is testing this plan in Davao.

``It may be a couple of years early here,'' says a cadre.

Originally Maoist in its inspiration, the Communist Party leadership has in recent years distanced itself somewhat from Maoism. But it does retain elements of Mao's military strategy, such as waging guerrilla warfare in three stages.

In the first stage, the rebels try to form a coherent political and military organization. In the second stage of ``strategic stalemate,'' they engage in larger, tactically more sophisticated operations against the Philippine armed forces. The final stage, the strategic counteroffensive, will in theory bring the insurgents to power.

The communist leadership says that in many parts of the country they are in the latter part of the first stage. Party sources say that they now have almost 15,000 regular guerrillas, and plan to triple this figure over the next three years. Coming out in the open

The strategy is already visible in Davao. For the first time in the present insurgent war, urban guerrillas are carrying out assassinations in broad daylight. The police, local residents note, have virtually disappeared from city streets.

Party cadres move freely in many of the city's squatter areas. At least one third of Davao's 1 million inhabitants are squatters. In some of these areas the party levies taxes, and the underground seems securely in control of the labor movement.

The most striking aspect of Communist Party operations is the Armed City Partisans (ACP) -- urban guerrillas who began operating here last year. Forty to 50 policemen were killed in Davao City last year, according to the regional commander of the Philippines Constabulary, Brig. Gen. Dionisio Tan-Gatue.

Partisans are also part of the blueprint. ``When they have perfected their strategy,'' a cadre says, ``I expect them to move into Manila. Some of them will probably go from here to train new groups.''

The move will probably come soon. A Manila-based Communist Party organizer said that the groundwork for partisan activities in the capital had already been laid. They would probably start operations in the first half of this year.

Armed City Partisans are selected from rural guerrillas who are ``brave and daring,'' says General Tan-Gatue.

A party organizer explained how they work.

``The ACPs usually operate in teams of three, backed up by spotters -- local sympathizers. Spotters also form a recruitment pool for the partisans and other armed city groups.

``They are given a list of people, and within 24 hours of the operation they're out. They probably don't come back here for three to six months. If the military manages to get anybody in a zoning sweep [house-to-house searches] through the squatter areas, the most they get are the spotters.''

The partisans seem to be popular in the poor areas, where they have acquired the image of protectors of law and order.

``They tell people who are abusive or drink too much to reform their ways. If they are hard-headed, they cut their heads off,'' says one Davao taxi driver from a squatter area. He laughs.

Underground sources confirm that their main targets up to now have been abusive officials, suspected informers, and the like. But in the last few months, the same sources add, partisans have changed their priorities.

``They now will eliminate any military [man] as long as he's got a gun,'' a cadre says. ``Even if you're a good [soldier] they'll shoot you.''

Why did the underground choose Davao as a blueprint?

``It's a sort of mini-Metro Manila,'' the cadre responds. ``People come from all over the country to work here. So it's ideal for an underground group to operate.''

In addition, there are industries here: Davao is the main commercial center for the southern island of Mindanao. And Davao has a long tradition of opposition sympathies, he adds.

Some of the party's Davao strongholds, ironically enough, adjoin the city's main military complexes.

One, where Communist Party organizers reportedly move from house to house in daytime, is next to the Regional Unified Command, the overall military headquarters for the region.

Another starts a few hundred yards from the city constabulary headquarters. (The city's constabulary chief wears a bullet-proof vest even to social occasions.)

But the armed forces are still trying to decide how best to handle the insurgency.

The most sophisticated approach comes from the Marine commander, Col. Rodolfo Biazon.

The colonel emphasizes outreach over combat. He visits schools, accompanied by a few aides (other commanders have at least several well-armed security men in their wake). And, when one of his men was accused of abusive behavior, Biazon offered to take a leave of absence while an impartial investigation was being conducted.

This was a precedent that would not please some of his peers, who are regularly accused of abuse, particularly summary execution of suspects.

The underground acknowledges that the Marines are highly credible adversaries. But Marine officers themselves admit to a major problem: Their civic action will be effective only if the central government is credible. And at the moment, they say, it is not. The military's divided response

Constabulary General Tan-Gatue favors more aggressive military action: battalion-sized operations (600 men, full strength) to break up the guerrilla companies (numbering 100 or more fighters) that are operating in the area.

But at the moment the government's battalions are static. If this continues, Tan-Gatue warns, ``the guerrillas will move to the second stage'' of their three-stage war.

Military actions in the countryside should be accompanied by tough measures in the city, Tan-Gatue continues. ``We have to expose CPP activity in the papers, then pick up the leaders,'' he says.

But Tan-Gatue seems demoralized. He says that the Philippines Constabulary was carrying out mobile operations ``until we lost our battalions in 1983.''

The battalions were dissolved as part of a move by the armed forces chief of staff, Gen. Fabian Ver, to reinforce his position at the expense of Lt. Gen. Fidel Ramos, who was then the commander of the Philippines Constabulary. General Ramos is acting chief of staff while General Ver faces trial for alleged complicity in the murder of opposition leader Benigno Aquino Jr. in August 1983.

The commander of the Regional Unified Command, Gen. Jaime Echeverria -- whose father was a Spanish Basque officer under Francisco Franco -- who pays lip service to a hearts-and-minds approach.

But he also seems to favor a tough policy.

Asked about zoning -- the highly unpopular policy of surrounding a community then combing it house by house, often with the aid of a masked informer -- General Echeverria admits it had its drawbacks, but stresses its usefulness in finding subversives.

``If we can avoid hurting our people I'd love it,'' he says. ``If we can't, then war is like that. We can't make it sweet for everyone, can we?'' A worried business community

The growth of insurgency has had a profound effect on Davao's businessmen.

Some no longer stay in the city. Others have acquired well-armed security men: One admitted to having four bodyguards armed with automatic rifles and submachine guns.

They are also being hit financially. In the next stage of its guerrilla war the Communist Party will need more money and guns. The party is stepping up its tax collection, and Davao's big corporations are among the largest contributors.

If they do not pay, they are liable to lose valuable equipment or crops.

Businessmen say that virtually all corporations are paying. ``Even, I think, the multinationals, though they do it very quietly,'' said one big businessman.

The taxes are high. Recent reports range from a demand of half a million pesos (almost $30,000) for a single plantation to 2 million for a big mining concern.

Many of the businessmen in Davao were actively antiregime. But faced with the upsurge in guerrilla activity, some are changing their minds.

``I don't like the present regime,'' says a big businessman with well-known opposition sympathies, ``but I cannot side with the left. Of necessity I must work with the military here.''

He -- and others like him, he says -- fund the military. He gives local field commanders 400 to 500 liters of gas a month. When Tan-Gatue needed 17,000 pesos ($1,000) to launch an anti-insurgent press campaign, the businessman provided the money.

All told, he estimates that he spends about 250,000 pesos ($13,500) annually to support the military.

The insurgents are still concentrating mainly on political organization. But when they move to their next stage -- large military operations -- life could get very brutal in and around Davao.

The businessman says he used to complain about military atrocities. ``But there is no other way. We need an offensive. How else do we fight communists? When you fight a war, people will die.''