WAITING. SMOKING CIGARETTES IN a hallway of the John McCormack State Office Building, down the hill from the state capitol in Boston. Leaning against the wall. James F. Lambert, owner and chief executive officer of Morse Tool, in New Bedford, Mass., has just finished a presentation to the board of the state's Economic Stabilization Trust. He has asked the board, as a lender of last resort, to lend his company $1.5 million to keep it alive. Lambert is nervous, depressed. He thinks his meeting was a flop. "How long can this go on?" he asks himself.

Like a number of companies in similar circumstances, Morse is seeking help from state government. And like a growing number of states, Massachusetts has made the fate of its older manufacturing industries a matter of official concern. Turning concern into workable strategies, however, has proved elusive. In a few instances, such procedures have produced the desired resurrections that, although miraculous, have not been entirely graceful. In other instances, state assistance has simply not worked. For even under the best conditions -- where the company is uncommonly flexible, where a labor union is desperately cooperative, and where the economic policies of an otherwise prosperous state are unusually generous -- even then, the process can be extremely difficult. Just ask Jim Lambert.

"On a scale of 1 to 10, I'd say the meeting was a 2," Lambert says, shaking his head and dragging hard on his smoke. What if he doesn't get the loan? What then? "I don't know," he says. "Maybe we could ask our suppliers to extend our credit. Or maybe we have to shut the plant down."

Standing nearby is Ron Carver, a representative of the United Electrical, Radio and Machine Workers of America (UE), which represents 300 of Morse's 400 employees. His face sets hard and somber. And Rod Poineau, the president of one of the union's New Bedford locals and a Morse employee for the past 20 years, who now falls gravely silent and pensive. The two union men are also thinking, "How long can this go on?" It is a scene borrowed in several essential aspects from a waiting room outside the intensive-care unit of a major hospital.

Unfortunately, there have been other such moments off and on for the past five years. Especially for Carver and Poineau, those years have strung themselves together in a long, fitful vigil as Morse Tool, attached to various life-support systems, struggled to survive. In the process, the company became something more than an isolated industrial casualty, a metaphor for a phenomenon that came to be called "deindustrialization." As corporations withdrew their assets from mature industries to reinvest them elsewhere in more attractive opportunities, plants were boarded up and left behind, workers wandered off to find other jobs, and communities were left to repair the wreckage as best they could. For a time, Morse became the focal point of a nationally recognized campaign against the trend. It became a symbol, a statement about corporate responsibility to the communities that once sustained them, about the painful human costs of impersonal economic decisions.

"If it were just Morse and just 400 jobs," says John K. Bullard, New Bedford's may-or, "that's reason enough to fight very hard. But it isn't just Morse. It also gives a signal to a lot of other industries and a lot of other families in this city about whether or not we care about their careers, whether we're prepared to do anything about it." After 122 years, with New Bedford's whaling boats long since gone and her textile mills now breathing their last, Morse Tool is still hanging on.

Stephen A. Morse founded the company about the time Ishmael met Queequeg. Morse had invented a spiral shaft of fluted metal known today as the twist drill bit, which was far superior to the flat, pointed instrument it replaced, and the strength of that idea spawned a new industry. Today, Morse manufactures more than 7,000 individual items, including drills, taps, end mills, cutters, and reamers for such heavy-manufacturing-industry groups as aerospace, automotive, and farm equipment. Its sales of $26.5 million represent about 4% of a $650-million market segment that now includes some 60 competitors, many of which are struggling and none of which has more than a 12% market share.

Although ownership has changed hands several times over the years, Morse Tool has remained a permanent fixture of the New Bedford landscape, one so familiar to the people who live here that it is simply called "The Drill." It was not until 1968, when Gulf & Western Industries Inc. bought the company, that Morse finally passed into the hands of a multinational conglomerate. Looking back, most observers see in that transaction the seeds of the troubles -- troubles that began to sprout in the spring of 1982 and have continued, in one form or another, to this day.

Gulf & Western first announced there were problems at The Drill during contract negotiations in 1982, as it unveiled a long list of concessions it was demanding from Morse workers. Management cited labor costs that were as much as $4 an hour above those at nonunion competitors and a 10% drop in productivity since 1976 -- both of which had contributed declining profits and market share. If the company were to continue operations in New Bedford, Gulf & Western said, the union must agree to reductions in wages and fringe benefits, vacation time, sick and personal days, paid holidays, and insurance for laid-off workers. The ultimatum was not unlike others that would be put on negotiating tables in mature industries across the nation.

The union's response would also become something of a model. UE Local 277 rejected Gulf & Western's basic premise and countered that the company's weakened competitive position was actually caused by the parent company's premeditated program of industrial disinvestment. A study commissioned by the union found that between 1977 and 1982, Gulf & Western had invested less than $800,000 for new equipment at the New Bedford facility, while during the same period, nearby competitors of roughly the same size had invested $1.5 million and $5 million. It was also pointed out that in 1981, the company had "invested only $6 million for cost-saving improvements in its entire manufacturing division, which had revenues of $1.3 billion that year and earnings of $107 million." In addition, the study judged that Gulf & Western had effectively eliminated departments that any serious management would consider crucial to a continuing profitable relationship between a tool company and its customers.

"We were saying to Gulf & Western," Carver remembers, "that you might have a legal right to shut it down or destroy it through disinvestment, but morally you don't. You've taken over a custodial role there; this is a community resource. It was vital when you took it over, and if you ever want to leave it, it ought to be just as vital as when you took it. In other words, you ought to leave the campground as clean as it was when you got there."

In May, after the union's own contract demands were summarily rejected, the workers struck the plant. Throughout the 13-week strike, community support for the unionized workers was building. Local businesses displayed silk-screened posters supporting the Morse workers, St. Mary's Orphanage donated food to the strikers, and Our Lady of the Assumption Church loaned its kitchen. And because the strike touched on issues of national significance, it received wide play in the media.

Eventually, Gulf & Western abandoned its demands for broad concessions, and a new contract was signed. The underlying problems, however, did not go away. The company continued to lose customers, some of which had switched to new suppliers during the lengthy strike. At the same time, the industry was heading into a recession. Moreover, roughly a year later, Gulf & Western announced in the national press its corporate objective to divest much of its manufacturing operation, particularly those companies in mature, capital-intensive industries. That objective, UE Local 277 soon learned, included Morse.

Over the ensuing months, the union and the corporation haggled over what qualifications would be used to assess potential buyers. The corporation, naturally, insisted on a buyer that would pay a fair price for its unwanted assets. The union insisted that the buyer have sufficient capital to operate the plant, keep the plant in New Bedford, have a long-term interest in the cutting-tool industry, and equally important, not demand wage concessions from the union as a condition of the purchase. Thus, when two buyers asked for wage cuts of 15%, the union members balked, and the offers were rejected.

It was the circumstances surrounding one of those offers, however, that convinced the union that Gulf & Western had been negotiating with something less than good faith. The offer had come from an outfit identified as Carlisle Capital Corp., about which Gulf & Western said it could provide no further details except the demand for wage concessions. Not content to leave it at that, Carver and Poineau began an independent investigation into the owner's identity, and their search ultimately led them to a small, single-family house in Cohasset, Mass. A man asked them in and, over the noise of children running around in the living room, identified himself as the treasurer of Carlisle Capital. They talked in a small room -- equipped with a telephone, an Apple computer, and a desktop copier -- that served as the corporate headquarters. No, he said, Carlisle was not buying Morse. Carlisle was only a business broker representing a group of investors. And those investors, Carver and Poineau were both shocked to learn, included none other than the president of Morse and several of his managers.

There were many in New Bedford who responded to this apparent lack of forth-rightness with some resentment, none more so than Brian Lawler, then mayor. It seems that even as they kept their own interests hidden behind the Carlisle front, Morse's president and top managers had been actively encouraging Lawler, without success, to influence the union to accept Carlisle's offer in the best interests of the entire city. "With that incident," says Lawler, who now owns and operates a New Bedford insurance agency, "Gulf & Western rightfully earned our distrust."

By this time, Gulf & Western was becoming anxious about the lack of progress in finding a buyer. Finally, at the end of April 1984, the company told the union that one way or the other, it would have done with Morse by the end of July, warning that the disposition might involve a buyer whose primary interest would be in liquidating it. Gulf & Western, in other words, was ready to play hardball. So, too, were Morse workers and the people of New Bedford. Within a matter of weeks, Mayor Lawler announced that, in view of Gulf & Western's intentions, the city was prepared to seize Morse Tool by right of eminent domain and sell it to a suitable buyer. It was a risky and controversial gambit. But it worked. The threat of an eminent-domain taking, and the years of litigation that might ensue, convinced Gulf & Western to back off from its July deadline. Then, in August, Jim Lambert showed up with an offer nobody wanted to refuse.

There have been many times since that summer in 1984 when Lambert, distraught by some new twist in the whole convoluted tale of Morse's recovery, has found it hard to recall whatever attracted him to the company in the first place. Eventually, he remembers that he saw then, and still sees today, a company that, even under poor management, maintained a sturdy reputation for a high-quality product made by dedicated and skilled machinists. "In cases like that," he says, "there are always a few pots of gold hanging around if you fix a few things."

Morse was a tailor-made opportunity for someone like Lambert, who had spent most of his business career turning around businesses for such huge companies as White Consolidated Industries, Rockwell International, and, for a few years, with Gulf & Western. Now 51 years old, Lambert wanted to be entirely on his own, and Morse gave him that chance. For $10.7 million in a highly leveraged buyout, Lambert acquired Morse and another, much smaller, cutting-tool company also owned by Gulf & Western. The deal was financed by a note from Gulf & Western and a revolving credit agreement with Barclay's Bank PLC, both of which were secured by the assets of the company.

Shortly after the deal was signed, members of Morse's union felt confident enough to celebrate the company's salvation. They cordoned off a block-long length of Bedford Street between the union hall and the plant and cheered loudly as Lambert climbed onto the back of a pickup truck and received a key to the city from the mayor. Lambert talked of the great days to come, and as they listened, Carver and Poineau almost allowed themselves to think, "At last, it's over." But it wasn't quite. Lambert had met all of the union's requirements for a buyer but one -- his capital resources were very limited. "We were relieved and pleased by him," Carver remembers, "but we were never not worried."

During the next year, as Morse regained lost ground, Lambert bought one small cutting-tool company and started another, and folded them into his parent company, Lambert Consolidated Industries Inc., based in Troy, Mich. Lambert had gone ahead with the acquisitions expecting that Barclay's Bank would adjust his financing formula to free up another $1 million -- according to his calculations, the additional loan would have been just enough to support continuing operations until internal cash flow took over. But Barclay's turned him down, and, in retrospect, Lambert admits he blundered badly. "I should have nailed down the financing first before I bought the companies," he says. "But there I was -- operating four companies on a formula only designed for two."

The reprecussions of Lambert's error were quickly felt in New Bedford. In the fall of 1985, unable to pay for all the raw materials to meet his volume projections, Lambert was forced to cut back production at Morse Cutting Tool Division by roughly 40%. The cutback, he now estimates, cost the company nearly $400,000 in sales. But more important, it reversed the company's momentum, and Lambert found himself meeting with Carver and Poineau to warn them of the company's impending cash-flow problems. Once again, Morse faced a life-and-death struggle. And, once again, Carver and Poineau could not help but wonder, "How long can this go on?"

Jim Lambert, however, was not Gulf & Western, and the union men responded by asking Lambert how they could help. Within a matter of months, the union membership agreed to forgo, for one year, its three weeks of paid vacation time, two holidays, a scheduled 25?-per-hour wage increase, and certain incentive benefits -- for a total savings to the company of nearly $1.1 million. In return, Lambert agreed to give union members and salaried employees 12% of the stock in Lambert Consolidated Industries, plus a 15% stake in a profit-sharing plan. The arrangement sealed what has become an unusually cooperative bond between a labor union and a company's management. And it is an arrangement that has stood both parties well as they together have petitioned the state government for additional assistance.

Massachusetts, like many of the old industrial states of the Northeast and Midwest, has lost its share of industries over the decades, only to see others rise from the ashes. But the process of industrial reforestation is not without hardship -- hardship that has fallen disproportionately on particular areas of the state and on a particular class of older, unionized workers. For some years now, it has been a political rallying cry of organized labor to protect such regions and such workers with legislation making it more difficult or more expensive for companies simply to close down their plants. And these proposals have met with the fierce resistance of business interests. Several years ago, Massachusetts opted out of that bitter debate by adopting a pastiche of programs for troubled companies and their workers, among them the Economic Stabilization Trust, which could make loans to troubled companies unable to secure financing from conventional sources. From the state Treasury, the trust received an appropriation of $6 million.

Morse Tool would have appeared to be precisely the sort of company that the Economic Stablization Trust was designed to help. But as with every other chapter in this story, this one was peppered with moments of nerve-racking uncertinty. In the hopes of securing a loan, Lambert and Carver met with state officials in Boston no less than a dozen times over a five-month period in the spring of 1985, coming away from their bureaucratic encounters alternately hopeful and depressed. At the insistance of one state official, Lambert traveled to New York to ask Gulf & Western officials if they would exchange their note for preferred stock in Morse Tool. But Gulf & Western, in a response Lambert found wholly understandable, rejected the idea out of hand, pointing out that it would stand to lose its first call on Morse's collateralized assets should the company fail.

Finally, after all the avenues were explored with the staff of the program and all the necessary information was provided, the Morse application for a $1.5-million loan came before the full board of trustees. The trustees were not enthusiastic. They were concerned that $1.5 million was not enough to meet the company's cash-flow needs.At the same time, they complained that the assets at the New Bedford facility, already highly collateralized, did not provide enough extra collateral even for the $1.5-million loan that was requested. Things were not going well.

"I couldn't believe what was happening," Carver remembers. "I just couldn't stand it anymore." Upon hearing the bad news from Paul J. Eustace, the state's secretary of labor and himself a former union official, Carver stormed out of the state office building and headed up Beacon Hill in the direction of Bullfinch's gold-domed state house. He was determined to take his case to the highest levels of state government.

Actually, Carver was well aware that Gov. Michael S. Dukakis had a political stake in the fate of Morse Tool. Dukakis himself had toured the plant in September 1985, after which he presented himself for a press conference flanked conspicuously by Lambert, Poineau, and Mayor Lawler. And in a study funded by the state's Industrial Services Program, Dukakis's name had been signed to an introduction that read, in part: "The New Bedford area community successfully turned around a difficult situation. We should salute the Morse workers, their families, city government, and the entire community for their effort in saving an important community resource." But perhaps more important than Dukakis's past words and deeds were his future plans. Here was a governor, after all, with national ambitions who had made the state's economic vitality the centerpiece of his political agenda. If the state were to abandon Morse, Carver reasoned, Dukakis would look uncaring, inept, or both.

Carver presented his appeal to John Sasso, Dukakis's chief secretary and chief political operative, who expressed surprise at the turn of events and promised to look into the matter. Within a week, the Morse team was recalled to Boston by the Economic Stabilization Board of Trustees. There were additional questions, additional answers, additional concerns. Now, Lambert, Carver, and Poineau were standing in the hallway outside the trustees' meeting room, leaning against the walls, waiting for an answer.

From their vantage point in the McCormack building, Lambert, Carver, and Poineau each has a clear line of sight over the events of the past four years. In one sense, it seems that they have come a very long way, but in another, given the all too familiar tension and uncertainty of the moment, it hardly seems they have moved at all. Once again they are thinking, "How long can this go on?" They are called back into Eustace's office and invited to resume their seats along the edges of the room, facing the trustees at the conference table.The board, they are told, has conditionally approved their loan request.

Days later, Patricia Hanratty, director of the Industrial Services Program, would try to explain the turnabout. Asked why a loan to Morse was not simply throwing good money after bad, she launches into a lengthy, defensive explanation teased here and there with wisps of political nervousness. She mentions reassuring contacts with Morse customers, improvements at the plant itself, and the comforting prsence of adequate collateral. Nonetheless, the reality of the situation is undeniable. "Is it a high-risk loan?" she asks rhetorically. "Yes, there's no question about it."

Two months later, in late August 1986, Lambert is sitting in his office at the plant in New Bedford. Almost unbelievably, despite the recent success in Boston, the story of Morse's spastic recovery is still at loose ends. Lambert starts with the good news. The company, he says, has been profitable in four out of the past five months. Although for 1986 The Morse Cutting Tool Division will report sales of $26.5 million and a loss of $1 million, most of the losses occurred during the fall and winter production cutback. Fiscal 1987, he predicts, should be very impressive. Over the past two years, Morse has reestablished itself in the marketplace, signing up more than 50 new accounts, including such high-volume customers as General Motors, Westinghouse, Armco Steel, and Boeing Aircraft. In addition, he explains, during the same two-year period, Morse has reduced its average manufacturing expense from $900,000 per month to $750,000 per month. The resulting improvement in profit margins should finally generate a profit next year of $2.6 million, he says, on about $29 million in sales. Yes, all in all, it should be a very good year, indeed.

But . . . there is a catch.

Lambert, it seems, was granted his $1.5-million state loan dependent on his compliance with several specific conditions, among them that he personally gurantee the loan, that he pledge the assets of two of his companies as collateral, that he meet once a month with representatives of the Industrial Services Program, and that he make certain management changes. Lambert says that he has done them all save one. The state is insisting that he bring in a new president to run the company while he spends more time on marketing. Oh, yes, he says, he is very grateful for the $600,000 portion of the loan that he has already received and, yes, it helped the company a great deal, as did the program's management consultants; but no, absolutely no, he will not bring in a new president, somebody with his own new management agenda that would only screw things up. "You can't see New Bedford from Boston," he says, the adrenaline peaking. "If the state wants to come in here and run the damn place, then I don't want the money." He is prepared to stand down the bureaucrats on this one. The bureaucrats will eventually blink, and the demand for a new president will be rescinded.

So here Lambert sits. Smoking cigarettes. Worrying about next week. Still waiting for the balance of the loan. Sitting up with his struggling company, arguably no longer in intensive care but obviously not off life support, either.

Thinking, "How long can this go on?"