Twenty-five years ago this spring, General Dynamics shut the doors of its sprawling electronics plant here on Goodman Avenue and moved to San Diego.

That day, 1,800 workers lost their jobs. The city lost one of its critical high-tech companies, and when the local congressman at the time, Frank Horton, called the closing "the most severe blow to Rochester since before World War II," few disagreed.

"The only place I know of where there's work available in this field," one laid off engineer gloomily told the local paper, "is in California."

But months passed -- and then years -- and the predicted blow never came. One by one, the engineers and marketing men and specialists left behind by GD's move to California formed businesses of their own. Within 15 years, some 17 separate companies in Rochester had sprung from the ashes of General Dynamics, collectively employing three times as many workers as had been laid off from the Goodman plant in 1971.

Other employees went to work for Xerox, which was founded in Rochester, or IBM divisions in the area, or joined smaller start-up companies, helping to fuel a high-tech manufacturing boom that is one of the main reasons this city of 231,000 ranked last year as one of the top exporting areas in the country, sending some $13.2 billion in goods overseas.

Today, a quarter-century after the Goodman plant was mothballed, it is not difficult to find refugees from the old General Dynamics who think that the "most severe blow to Rochester since before World War II" was actually a blessing in disguise.

"Several years later, I saw the former general manager of the {General Dynamics} division, and I walked over to him and I said I never thanked you for the greatest favor you ever did me," said Edward McDonald, who founded a successful sonar equipment manufacturing firm just after being laid off by GD. "By closing down the facility in Rochester, you made me a multimillionaire. Thank you. It forced me to do something that I never would have done."

"I think what happened here is a healthy phenomenon," said Charles Plosser, dean of the University of Rochester business school. "It wasn't without its pain. . . . But it has helped us build a more diversified business base, which has helped in turn to insulate us from shocks in the economy."

Whether Rochester is an appropriate model for the rest of the country is an open question. But looking at what happened in Rochester from the perspective of 25 years -- as opposed to six months or a year -- suggests that public apprehension over the consequences of the recent wave of corporate downsizing may be misplaced -- or at least premature. According to some economists, Rochester's remarkable recovery from the loss of one of its major employers demonstrates that the economic future of cities and states depends less on where the biggest companies chose to locate than where the best people chose to locate. And in Rochester, many of the best people stayed behind.

"GD imported a lot of good people. They brought in engineers from Sweden and Norway and Belgium and England. I never heard so many different accents," said Jim Vella, who was a production manager at the old Goodman plant. "Those people were going to succeed whether GD stayed or not."

"I've often said that the best thing that can happen for a big company town is for the big company to take a big rapping," said David Birch, president of Cognetics Inc., an economic research firm in Cambridge, Mass. "This is a hard concept for people to grasp because at the moment {layoffs} occur, everyone says ohmigod the sky is falling. They don't have any idea what the future might be. It's very frightening. But in the long run, it may be for the good."

The striking thing about 1971, the year of the General Dynamics plant closing here, is how similar the economic climate was then to the present day. This was a time of radical downsizing, not just of blue-collar workers but of the kind of middle managers whose positions had previously been considered sacrosanct. In 1970, for example, the number of unemployed white-collar workers nationwide jumped from 932,000 to 1,258,000, and the number of professional and managerial workers without work climbed from 279,000 to 409,000. In the fall of 1970, Time magazine worriedly called this "the new face of unemployment."

Sound familiar?

In Rochester, long a manufacturing hub of the Northeast, the economic upheaval translated into a steady stream of cutbacks at some of the city's biggest and best-paying companies. In April 1970, for example, the Penn Central Railway had closed its Dispatch Car shops in East Rochester, throwing hundreds of employees out of work. Then General Dynamics closed a small electronics company in nearby Newark, the Sylvania television company shut down one of its plants just outside the city, and General Motors temporarily laid off several thousand employees at its two Rochester divisions because of a United Auto Workers strike in Detroit.

But closing the Goodman Avenue plant was clearly the biggest blow. It was here that General Dynamics -- then, as now, one of the country's biggest defense contractors -- did some of its most sophisticated work in undersea warfare and long-range radio communications. At its height, the plant employed close to 5,000 workers. But then GD had financial difficulty. Five thousand workers became 1,800 and, eventually, 1,800 became zero. In the end, only a few dozen carefully selected specialists and executives were chosen by the company to make the move to California.

"It was a little tough," said Patrick Amico, who was an engineering aide at GD and one of the thousands laid off. "I had a wife and two kids who were still in school and getting ready to go to college. I was out of work for a year. I thought I'd have to leave Rochester, go south of here, probably Texas or Florida."

But Amico eventually found a better-paying job at the Rochester-based Xerox, which was then rapidly expanding. Some of his colleagues went to another local firm, the eye-care company Bausch and Lomb. The anti-submarine warfare research and development division at GD -- a group of several dozen -- went almost intact to IBM in nearby Oswego, forming a key part of the computer-maker's expansion into military electronics.

Still others went to R.F. Communications, a long-range radio manufacturer started in a garage in the early 1960s by four former General Dynamics engineers. R.F., which in its present incarnation employs about 2,000 people in the Rochester area, soaked up ex-GD workers and used their expertise to challenge GD itself for government contracts.

The most important chunk of new jobs, however, came from companies that grew directly out of the GD plant closing.

Lee Salmen, for example, left the GD underwater navigation department in 1969, when he first caught wind of the move to California. He didn't want to move West and had an idea for a product -- an electronic amplifier -- that GD wasn't interested in. With a $250,000 bank loan and the help of two friends, he founded ENI, making the electronic guts for things like MRI machines, organ scanning devices used by hospitals, and semi-conductor fabricators. By 1971, when the Goodman plant finally closed, ENI was large enough to be able to offer jobs to a handful of engineers, technical people and assembly line workers and as it grew, it kept drawing on the GD pool.

"I would say that by 1972, probably 65 percent of our employees were from General Dynamics," Salmen said. Today the firm employs over 500 people.

Or consider the example of Edmac, the company formed by Edward McDonald, after he lost his job as head of the anti-submarine warfare division, one of GD's most successful divisions.

"They asked me to go {to California}, but they said take no more than five people. Out of 800. I said I couldn't do that. I said I was going to have to leave. They said how about Friday. On Thursday, I established Edmac."

Edmac was basically the old submarine warfare unit, reconstituted.

"My vice president of manufacturing used to be in charge of manufacturing at GD. He knew people there who were laid off and we hired them, quality control people, assembly line people," McDonald said. "My purchasing agent was the man handling purchasing at GD. I basically had this free pool of skilled personnel."

When McDonald sold his company for a hefty profit and retired in 1982, it employed over 200 people.

The story of Edmac and ENI was repeated over and over again, to the point that the Rochester business directory is today a virtual who's who of GD progeny. There is Metrosonics, and Sideband Technology and Radionics and Hydroacoustics and Spectracom and others, totaling, over the years, some 17 firms and over 5,000 employees. Most are in the same business that Rochester thought it had lost with the demise of GD -- advanced electronics. Unlike GD, however, most concentrate not on defense work but on the more profitable and more stable commercial side of the business.

"The problem is that people don't see the big picture," said Roger Bettin, an ex-GD engineer who is one of the co-founders of R.F. Communications. "They hear about downsizing and they think that's it. They don't see the big picture. Jobs are being created all the time."

Rochester, of course, is not a completely typical American city with its high-tech business base and world-class university, and nor is GD a typical American company. Birch, who has studied the effects of large layoffs, says that if the people thrown out of work are relatively low-skilled employees, the chances of a Rochester-style recovery are small.

"If you have a big automobile tire plant close down, it probably won't produce a lot of new businesses," Birch said. "That's a relatively low-skill work force. That doesn't tend to engender entrepreneurship."

But the kind of layoffs common today -- like the big AT&T downsizing -- and the layoffs that predominated in the early 1970s, involve skilled workers, and Birch believes the Rochester experience can be applied elsewhere.

For example, Birch looked at what happened in the Seattle area after Boeing fired 17,000 workers in the early 1970s, and found some 600 to 700 new companies whose origins could be traced to those layoffs. Then he looked at the big cutbacks at the computer-maker NCR in Dayton, Ohio, in the mid-1970s and found the same thing.

"What happens is that you go from a one-company town to a diversified company town," he said. "The unemployment rate falls and the number of economic opportunities goes up."

And Rochester itself has seen the lessons of the GD closing repeated more recently. In the late 1980s and early 1990s, the town's two biggest employers -- Xerox and Kodak -- between them cut thousands of jobs. But the size of the work force in the Rochester metropolitan area didn't shrink. In fact, between 1988 and 1993, it expanded by 6 percent, or about 1 percent a year. And in the same period, during a national recession, the unemployment rate in the Rochester area surged only slightly, from 3.2 percent to 4.8 percent, before dropping back down to just over 4 percent, as dozens of smaller companies -- many of them offshoots of Xerox and Kodak -- moved in to take up the slack.

"We get the headlines of the big companies downsizing," said Plosser. "The AT&T headlines. The Kodak headlines. But we don't get the headlines when a new company is formed and hires 100 workers or five workers or expands. It's clear that is going on and is more than compensating for the big companies' contractions."

Today on Goodman Avenue, on the same site of the long-departed GD electronics plant, there is a gleaming new Bausch and Lomb factory, where hundreds of workers make contact lenses where GD once made electronics. CAPTION: Edward McDonald founded his sonar equipment firm after being laid off.