Here in recession-ravaged Michigan, the state government and private industry are putting their money not on a computer chip but on developing the most advanced industrial processes in the world.

"The underlying assumption is that manufacturing will remain the key component of the Michigan economy," Arch W. Naylor, acting director of the Industrial Technology Institute, told the American Association for the Advancement of Science today.

The $250 million institute is Michigan's answer to high tech. It has $17.5 million from the hard-pressed state government and $50 million in private funds, and is raising still more "to make Michigan the intellectual center of manufacturing," Naylor said.

The idea of continuing to anchor a regional economy on the auto is heresy in some Washington quarters. "Bending metal," as heavy industry is referred to here, is widely seen as a legacy of the past rather than the economic hope of the future.

However, Frank P. Stafford, chairman of the economics department at the University of Michigan, said that computers and other electronics account for only about 2 percent of American industrial payrolls. In addition, foreign competitors can copy computer components quickly and manufacture them cheaply to undersell the Americans who first developed them.

High-tech industries also "are exceptionally mobile within the United States and internationally," Stafford said, and their economic benefits to a region may prove "ephemeral."

Michigan is banking on what it sees as its regional assets to ensure that when the current recession ends this state will again be a preeminent industrial center.

Stafford cites these assets: Michigan has easy access to raw materials, including one-third of the world's iron ore reserves in the Lake Superior region. Transportation is cheap and well-developed. Energy is relatively inexpensive. With 15.5 percent of the state work force unemployed, labor is plentiful. So is office and manufacturing space. Real estate costs are low. Roads, sewers and water systems already are in place.

And, perhaps most important, the auto industry already is concentrated here. Detroit has borrowed a phrase from its archcompetitor, Japan: can ban. Americans would call it concentration. At one time concentration was in disrepute. Suppliers were spread out across the country to take advantage of lower wage rates in other states.

But under the theory of can ban, decentralization obscures production bottlenecks and builds in big product inventories. This theory, according to Stafford, is causing the auto companies to "reassess their views about where to put production plants."

Still, Michigan has what are viewed as disadvantages. Although wages here for skilled workers are in line with national urban averages, wages for the unskilled were 33 percent higher than average in the 1970s, the Department of Labor Statistics reports.

Stafford said that since the recession, hourly wages in some midwestern cities have fallen from the once-common $11 to about $6. At the same time, productivity in some auto plants has gone up 9 percent a year.

The Industrial Technology Institute has hired only 30 of its projected 200 to 300 employes. Among their early projects is the design of a microcosm of an automated factory in which they are testing how robots, computers and machine tools might communicate with one another.

"The usual metaphor used in manufacturing automation is that there are islands of automation--welding stations, machine tools and robots sitting by themselves," Naylor said. "The idea is to connect islands together to make the entire combination into one automated system working together in a coordinated way."

Later, Naylor said, the institute will move into robotics, computer software, research on artificial intelligence and the social impact of automation, as well as vision systems in which cameras locate a part on a conveyor belt and enable a robot to pick it up.

So far, the institute has been relatively free of political controversy. But it will have to walk a fine line, Naylor said, between doing research that appears so avant-garde as to be impractical and becoming a job shop for Michigan corporations. It also has to avoid, in the words of one Ann Arbor critic at a recent meeting, becoming something "to make faculty members who drive BMWs that much richer."