LOCAL HEROES AROUND THE BLOCK The Business of a Neighborhood By Tom Shachtman Harcourt Brace 325pp $28 Not so long ago, downtown Manhattan's Union Square was known for its funky mix of small garment factories, locally owned department stores, labor union offices, and an array of small shops. Today, the big chains hold sway: Staples, Barnes & Noble, Toys 'R' Us, McDonald's, and more. Soon, a Virgin Megastore will join the fray. With such changes commonplace, can city entrepreneurs survive? Around the Block: The Business of a Neighborhood by Tom Shachtman tries to answer that question and provide a glimpse of the future. The author, whose previous books include Skyscraper Dreams, a history of New York real estate deals, spent 1993 compiling an intimate look at a ''typical'' big-city block where two endangered species, middle-class residents and small-business owners, yet endure. Shachtman's block is in Chelsea, a short distance from Union Square. This rectangle is home to 2,000 people, and more than 2,500 people work here--two-thirds of them at three large companies, the rest at more than 100 small enterprises. The author focuses on the district's complex human dramas--the experiences of Bell Atlantic Corp.'s last generation of human telephone operators, the travails of a computer-game designer, and the ambivalence of a Korean-born liquor-store owner toward his new country. Owners of such traditional businesses as printing and bulk-mail processing must choose whether to purchase expensive new equipment or face obsolescence. Small fry fight a daily battle against bigger fish. A successful video-store owner gets repeated visits from gray-suited men who inquire after the health of his business. Shortly thereafter, Blockbuster Video opens across the street. The small store survives by creative adaptation: offering offbeat fare that appeals to locals, laying off a few workers, and opening a gym in the same building--a move made possible by the store owner's purchase of the property. Site ownership is key to small-business survival, the author argues. So, too, is specialization: A clothing designer and manufacturer succeeds by capitalizing on the neighborhood's gay culture. Shachtman asserts that the classical economic model's ingredients of land, labor, and capital are being replaced by ''mental capital,'' the development of which requires neither lots of space nor mountains of money. Functioning as purveyors of taste, small urban businesses must become trendsetters, he avers. And echoing a more commonly heard argument, Shachtman argues that small outfits are key to future job creation. Unfortunately, the book's many details tend to overwhelm this analysis, which should have been presented in a separate section. Still, Around the Block makes an eloquent plea for the survival of neighborhoods and the preservation of human scale, this time from a pro-business point of view. Perhaps it even offers a novel retail model: Together, the block's wide array of businesses could constitute the ultimate megastore. BY VICTORIA RUBIN RELATED ITEMS PHOTO: Cover, ``Around the Block''

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