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By Salman Rushdie
Granta Books/Viking
216 pages, $18.95

IN HIS new book, Indian-born author Salman Rushdie has transcended the mixture of realism and magic that marked his extravagant "Midnight's Children" and his last, fateful novel, "The Satanic Verses," and floated off into fantasy.

You could say Rushdie has gone underground from reality in this fifth book, just as he has been forced undercover since the late Ayatollah Khomeini imposed a death sentence on him for alleged blasphemies in "The Satanic Verses."

Ironically, as the civilized world finally realizes the seriousness of fanaticism's goals and methods, the death threat is just beginning to lose its aura of fantasy. When it happened, it seemed like something Rushdie might have invented in his sometimes prescient work -- the hijacking of a jetliner over the British Isles in "The Satanic Verses," after all, preceded the real tragedy of Pan Am Flight 103. But, of course, his situation is all too real, and the author who burst onto the world literary scene as a self-proclaimed witness of history in "Midnight's Children" has become a victim of history. For all its romp and wordplay, invention and color, a melancholy reality underlies this latest book.

Although "Haroun" is called a novel, it is really more a tale for sophisticated children.

With childlike exuberance, it is shaped by the classic features of fairy tales and tales of quests: a boy embarks on a journey to save his wounded father, along the way encountering fantastic creatures and undergoing fabulous adventures. The book's roots are firmly planted in Grimm and Andersen, and very definitely, with its never-ending array of bizarre characters discoursing on subjects both true and nonsensical, "The Wizard of Oz" and "Alice in Wonderland."

But while it bubbles along like an animated cartoon, wanting only the slightest effort to make music and illustrations out of its vivid images, this book is no more child's fare than was Swift's bitter "Gulliver's Travels." It is a deadly serious fable by an artist whose life bears witness to the cruelest effects of artistic repression (a subject that has recently flared up on our own art scene). "Haroun and the Sea of Stories" is an impassioned defense of the imaginative powers of the artist, and the absolute necessity to defend art against censorship.

The "sea of stories," Haroun's adventures, begins in a sad city (so sad it has forgotten its name) where the chief industry is the manufacture of gloom. Haroun's father is a famous bringer of cheer, the storyteller Rashid. The names of father and son derive from "The Arabian Nights," whose shape has shaped this book. Rashid, famous for his stream of "tall, short and winding" tales, is a juggler of stories he keeps going in a dizzy whirl, "never making a mistake." But one day his luck runs out (as luck has a way of doing, wryly comments the author): His wife takes off with his "mingy, sticky-thin neighbor" and his stream of stories abruptly dries up. Haroun, guilty of having posed the cruelest question you can ask a storyteller -- "What's the use of stories if they aren't true?" -- sets off on a journey to put things right.

Thus begins a "Fantasia"-like adventure (movies, an Indian obsession, have a strong influence on Rushdie's style) to places like the Dull Lake, Moody Land (where people's moods determine the weather), Shadowland (a dark place indeed), Gup, where it is always light, Chup, where it is always dark, and finally to the Source of stories. Like Dorothy, Haroun has three fantastical companions: the Water Genie Iff; a bus driver turned mechanical bird, Butt; and a Floating Gardener made of seaweed. Like Alice, he drinks magic potions, meets a walrus, and sees book pages acting like soldiers, as playing cards acted like gardeners in Wonderland.

There are Plentimaw trees, eggheads, and when the magic gets out of hand it's explained away by P2C2E's and M2C2D's -- processes and machines there isn't space to dissect, though surely Mr. Rushdie could take off into invention on these if he chose.

The whole business gurgles and bops along, opening into vistas of colors and shapes to challenge the adult reader and keep wide-eyed any child listener who stays along for the ride.

Still, for all the playfulness there lurks at the center the author's obsession. Khattam Shud (his name means Completely Finished) is the Cultmaster of Bezaban, which means "Without a Tongue," commander in chief of an army of story-wreckers, a Union of Zipped Lips. It is their task to murder new tales with anti-stories, pollute the Ocean of Stories (already endangered by popular romances and some children's stories, we're told) whence spring the Stream of Stories. Like all fanatical leaders, Khattam has as his goal total control: "The world is not for fun," he declares. "The world is for controlling."

Throughout the book, Haroun's nonsensical companions ask the burning questions: "What is the point of giving persons Freedom of Speech," asks Butt, "if you say they must not utilize same? And is not the Power of Speech the greatest Power of all? then it must surely be exercised to the full?"

Obviously, and for obvious reasons, Rushdie is not exercising his own powers "to the full" in this book. Missing is evidence of the self-diagnosed "Indian disease, the desire to encapsulate everything, the whole of reality" in one book, as he did in "Midnight's Children" and "The Satanic Verses."

What Rushdie has achieved, besides an entertainment, is an irresistible defense of storytelling and freedom of expression: Haroun learns that to denigrate a story is the saddest thing of all.

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