CAMBRIDGE, MASS. -- In a computer-studded office on the banks of the Charles River, less than two miles from the Massachusetts Institute of Technology, a half-dozen technicians abandon the hypnotic glow of their terminals to dance on table tops. Company Vice President Charles Brown has had a sudden urge to show off a tape of his rock band's latest tunes.
Brown, 28, is a former MIT physics student and part-time guitarist who helped found New England Technology Group (NETG) Inc., an innovator in the nascent field of interactive video discs. "We encourage a certain amount of zaniness in the work place," Brown said as he surveyed the impromptu nightclub scene before him.
An NETG video presentation on Americans' daily use of high technology -- from word processors to cordless phones -- will open this month in Moscow as part of what the U.S. Information Agency describes as the first major U.S. cultural exchange exhibition in the Soviet Union since 1979. And the video discs may be more to the point than the information they contain.
As Soviet citizens manipulate the images by pressing various parts of the screen, they will have their hands on a product of the unique culture of Cambridge that has helped sustain the bullish Massachusetts economy -- picking up where the high-technology revolution left off. Like NETG, a wide array of young firms in such fields such as computer software, artificial intelligence, genetic engineering and consulting are part of what might be called a "soft-tech" revolution.
After expanding dramatically in the early 1980s, the high-tech manufacturing sector stalled in 1985-86. Smaller companies developing new technologies for use in high-tech hardware are flourishing.
"The soft side of high technology is what's growing explosively," said Alden Raine, director of the governor's Office of Economic Development. "The companies making new applications of computer technology are on the cutting edge of the economy."
In Cambridge, the proliferation of such firms has made parts of the cityscape unrecognizable. Since 1980, developers have built and rehabilitated about 5.5 million square feet of office space; an additional 2.5 million square feet is under construction, according to the Cambridge office of community development.
Lynne M. Barron, a Cambridge real estate agent for 12 years and producer of a semiannual survey of Cambridge real estate called The Barron Report, attributes the building boom in Cambridge to a single institution: MIT.
"The new ventures here use MIT graduates who want to stay in Cambridge and be close to Boston," she said. "Most of the high-tech people here are young, and young people want to live in the city." That explains why most of the new office development in Cambridge -- about 66 percent, according to Barron -- has occurred in Kendall Square, a once-desolate district of vacant lots and warehouses adjacent to the MIT campus and across the Charles from downtown Boston.
The state's debt to MIT goes beyond Cambridge. State officials and private analysts say MIT's researchers and graduates were crucial to the economic turnabout in which the state's manufacturing sector shifted from the depressed textile and shoe industries to computers and other high-tech products.
From 1976 through 1985, the number of traditional manufacturing jobs in such areas as textiles and apparel dropped from 421,000 to 391,000 while the number of high-tech manufacturing jobs rose from 173,000 to 264,000.
The simultaneous growth in areas such as business services (advertising or temporary secretarial help) and health services helped slash the average unemployment rate from 11.2 percent in 1975 to 3.8 percent last year, a factor in Gov. Michael S. Dukakis' decision to seek the 1988 Democratic presidential nomination.
Ronald F. Ferguson, an assistant professor at Harvard's John F. Kennedy School of Government, said the recent economic metamorphosis here carries on a state tradition of technological innovation dating at least from 1813, when Francis Cabot Lowell helped establish a company that used water-powered looms in the world's first fully integrated textile mill.
MIT likewise has exercised an important influence over the state economy since early this century, when Massachusetts became a leading producer of electrical machinery.
Today, Ferguson said, local universities, including MIT, Northeastern and Harvard, serve as "incubators" for innovative firms that constantly breathe new life into the economy. Typically, he said, MIT and Northeastern provide the engineers and Harvard produces the business graduates able to make new ideas profitable.
But Ferguson singles out MIT, which "as early as 1920 was encouraging its professors to develop ties with industry. People at MIT believed that the purpose of technological progress was human progress. They wanted to make sure that what was learned in the lab got applied to the real world. They wanted to make money, too."
MIT President Paul E. Gray, who notes that the school's relationship is part of its charter, said there is nothing contradictory about MIT's move to strengthen its humanities curricula starting next year. "This is not an attempt to humanize engineers and scientists," he said. "One needs to have some sense of experience, of values and of the ways in which society functions to be effective."
In the case of New England Technology Group, company president and cofounder Steve Gregory was researching interactive video discs under a Defense Department grant at MIT when he decided that he might market them for general use. The discs allow a viewer to control what is seen and heard by touching the video screen at key moments.
"It got to the point where I could see it was time to apply the technology to museums, retailers, and education and training," he said. So Gregory left the safety of academia and started working independently from his home. A year later, his living room was lined with stacks of video monitors. MIT students helping with the new business were sleeping on his floors.
When delivery trucks began blocking the street in front of his house, Gregory's wife -- and his neighbors -- had had enough. After a short stay in a Boston suburb on Rte. 128, the preferred location for many of the state's larger high-tech companies, Gregory moved the firm to Cambridge. Like many other soft-tech executives, Gregory decided on Cambridge because he wanted to be closer to other firms that supply his company with specialized services and equipment.
Perhaps most important, he wanted to be closer to his young employes. "There's a pool of people here, and that's really important," Gregory said. In some instances, recent college graduates are enticed to work at soft-tech firms for less than top wages by the opportunity to participate in challenging projects at the forefront of technology.
"I'm probably not earning what I could be earning," said NETG Vice President Brown, pulling a long braid from beneath his shirt. "But at a lot of other places, I couldn't have my ponytail."
Although the state's newer soft-tech firms do not account for an overriding share of state employment, analysts and officials believe that they are the key to continuing economic health in the state. "There is no one driving sector in the state's economy," Ferguson said. "There is a driving process, and that process is innovation."
For their part, state officials are focusing on the small, soft-tech firms not only because of their regenerative role in the economy but because, as Raine of the Office of Economic Development said, "every now and then one of these small companies becomes a Digital." Digital Equipment Corp., one of the country's leading computer makers, was cofounded in 1957 by Kenneth H. Olsen, an MIT graduate and former MIT employe. Today, the company based in Maynard employes 105,000 workers worldwide, 30,000 of them in Massachusetts.
Two state agencies have been created to encourage and finance such growth with low-interest loans. The bright outlook for the burgeoning soft-tech firms -- and the economy's continued strength -- is tempered only by an anticipated labor shortage in the near future: There are not enough people to fill as many jobs as could be created.
The high-tech manufacturing sector expanded again from last September to March, but the Dukakis administration said in its budget message that the tight labor market will prevent a return to the growth of the early 1980s.