RUSTED DREAMS Hard Times in a Steel Community By David Bensman and Roberta Lynch McGraw-Hill. 250 pp. $17.95

THE REMAINS of abandoned factories lie strewn across the rust belt of America's old industrial heartland, like fossilized traces of a once proud species of economic life. In some quarters, it is fashionable to deem this an irrepressible step toward a postindustrial economy of high technology and personal and business services. According to such a view, the triage of steel and other basic industries is simply the way of evolution, sorting out the efficient and vital from the archaic. Metaphors like sunrise and sunset industries conjure this same sense of naturalistic inevitability.

It is precisely such abstracted appraisals that David Bensman and Roberta Lynch wish to counter in their Rusted Dreams, a detailed and compelling chronicle of the collapse of two steel plants in Chicago's Southeast Side. By dwelling on a single industry in a lone neighborhood, they provide a humanizing account of the structural changes that are reshaping the American economy, blue-collar communities and the lives of workers and their children.

Bensman and Lynch argue that neither Darwinian selection nor inexorable progress did in Wisconsin Steel and U.S. Steel's South Works plant. Nameable people, specific choices, and actual policies were the prime culprits. Steel's troubles -- intensified in recent years by the Federal Reserve's tight controls on the money supply, the high value of the dollar and the Reagan-engineered recession of 1982 -- date back to the 1950s, when Japan began to heat up global competition. Like other oligopolists, American steel makers did not relish the rigors of competition, except in their rhetorical preachments. Refusing to admit the economic world was changing, they failed to modernize their plants sufficiently to stave off Japanese, Brazilian, Mexican and Taiwanese rivals, whose governments subsidized their low-price steel in countless ways. To this onslaught, American steel "responded schizophrenically": seeking protection, linking with foreign steel producers, cutting wages, cooperating with labor, closing modern facilities, modernizing old facilities, and, finally, getting out of the steel business entirely. Meanwhile, nothing in the political culture obliged the steel companies, transfixed by ebbing profits, to consider what these strategies might do to the lives and communities of their employes.

This version of steel's woes sustains a call for action. What men and women have put asunder, others may remedy through more coherent policies. The list, a heady, Social Democratic one, includes import restrictions, devaluation of the dollar, cuts in military spending, rebuilding the infrastructure, an industrial policy. The common thread is a trust that democratic societies can control their destinies through active, planful government.

Rusted Dreams does more than trace out the chain of decision and policy that led to the demise of Wisconsin Steel and South Works. It is also a parable of human interdependency in a more intimate sense. Through the suffering of the steelworkers, Bensman and Lynch intend us to learn what the workers discovered only grudgingly: the illusion of self-sufficiency. Once, the financial aspects of the steel industry were obscure to the workers, but "terms like 'disinvestment,' 'the balance of trade,' and 'foreign competition' now took on palpable meaning: these were forces that could topple a steel mill." As the fate of the Southeast Side proclaims, the connective tissues of a neighborhood, its very capacity for community, even individual sanity, are fleeting things which depend for sustenance on a vigorous economy.

When Wisconsin Steel and South Works collapsed, so did an entire way of life. In the years after World War II, millions of American workers rose to comfortable middle-class stations in life. This process generated a conviction of the promise of American life as well as a self-congratulatory faith in their own respectability. With the closing of the plants, both began to unravel.

THERE WERE the tangible privations and violations: the loss of health care, unemployment or work at half of the wages of before, the inability to feed one's kids; family breakdown, the steel corporations' lies and reneging on pension obligations, the impotence of the union, alcoholism. Nor could the vaunted Chicago political machine provide succor; by their silence and denial, politicians like Ed Vrdolyak, the Southeast Side alderman, abetted industrial decline. Officials betrayed as well as abdicated. Cognizant of the approaching 1980 presidential election, Mayor Jane Byrne reassured a thousand steelworkers of a White House pledge to save Wisconsin Steel. "It was like manna to those lost in the desert; workers left the meeting with tears of joy in their eyes." Apparently, and cruelly, Bryne and Vrdolyak already knew the rescue had been scuttled.

"Deindustrialization" left more elusive wounds. Self-sufficient laborers, who at one time might have railed against welfare cheats, found themselves yielding to necessity. A father told the authors, "I'm not proud no more. Being proud don't feed your kids." Garrulous workers who enjoyed the rough camaraderie provided by the culture of work sunk into bitter solitude. One steelworker "just went crazy . . . I've worked all my life. I never collected a dime in compensation. So to be without a job! . . . I had pills under my pillow and I would think that one night I was gonna get up and end it all." A job counselor tells of the Mexican-American men who disappear without a trace. "It's devastating. {They say} No soy hombre -- I'm not a man -- I can't even support my family; they're better off without me.' "

Not everyone yielded to despair; a few looked to, and even became, new kinds of leaders, for whom work and community, economics and politics, could no longer be separated. Sloughing off an ingrained discomfort with protest, they experimented with political talk and action: priests, pushed by their parishioners' ordeal toward a gospel of activism; unemployed Good Samaritans who run a food pantry for other needy workers; an electrician turned community-organizer, hounding the Bureau of Employment Security to deliver benefits without bureaucratic delay and arrogance; feisty union activists like Alice Peurala, wary of the potential for sell-out lurking in the International Union's cozy relationship with management. These dogged, caring people are truly heroic. Suffering did not corrode their democratic capacity but gave them a chance to discover and refine it. Bensman and Lynch never abandon their respect for the virtue and talent displayed by ordinary people. This faith is the ennobling vision of Rusted Dreams. :: Jonathan Rieder, an associate professor of sociology at Yale, is the author of "Canarsie: The Jews and Italians of Brooklyn Against Liberalism."