THE COLONY OF UNREQUITED DREAMS

By Wayne Johnston.

562 pp. New York:

Doubleday. $24.95.

If you're at all attentive to recent literature, chances are that you can name at least two novels set in Newfoundland: ''The Shipping News,'' by Annie Proulx, and ''The Bird Artist,'' by Howard Norman, for example. Both are memorable books, but that isn't the only reason they come to mind so readily upon mention of their setting. Newfoundland is more than just a maritime province of Canada. Like few places these days, it seems remote, even exotic in a chilly way, and it's likely you haven't been there. It therefore can assert itself as a setting to the point of claiming a character role: a vast, desolate mystery hovering just over our northeast flank.

In Wayne Johnston's book ''The Colony of Unrequited Dreams,'' it is the star. Johnston, the author of four earlier novels, notably ''The Divine Ryans,'' has set out to write the definitive Newfoundland novel, and yes, he is well aware of how that phrase will ring in the ears of outsiders (he was born and raised there and now lives in Toronto). As a measure of how ambivalent an undertaking this represents, consider that while the average national epic might center on a country's struggle for independence, the climax in this book is Newfoundland's incorporation into Canada -- its loss of national status -- which occurred in 1949, on April Fools' Day, as it happens.

Newfoundland's anti-Bolivar, the architect of confederation, was Joe Smallwood, who became the province's first Premier. ''The Colony of Unrequited Dreams'' -- an ungainly title for this fine book -- is his story. As slight, weedy and vulnerable as he is, Smallwood wills himself into identifying with the harshest aspects of his homeland. In one of numerous awed passages, he observes, ''It was hard to believe Newfoundland was an island and not the edge of some continent, for it extended as far as the eye could see to east and west, the headlands showing no signs of attenuation; a massive assertion of land, sea's end, the outer limit of all the water in the world, a great, looming, sky-obliterating chunk of rock.''

If we were not alerted to the factual underpinning by a prefatory note, those of us who are ignorant of Newfoundland's history would not suspect the book of being a biographical novel, or at least not until the final hundred pages or so. Joe Smallwood is for most of the story an abject and plaintive figure, and the narrative, which is primarily in his first-person voice, tunnels deeply into his self-doubt. Furthermore, the book has about it an aura of something akin to magic realism, or its northern equivalent -- nothing remotely supernatural occurs, and yet, as in the novels of Robertson Davies, causes and effects often seem to have been paired off by a particularly whimsical deity.

Reminiscent of Davies, for example, is the fact that the entire course of the book's events is set in motion by an ill-considered childhood prank. Smallwood is the offspring of an impoverished branch of a prominent island family. He is constantly reminded of the disparity between the branches by an enormous boot-shaped sign, bearing the family name, that hangs at the entrance to St. John's harbor, advertising a prosperous merchant uncle. This uncle springs for his tuition at the most prestigious school in the city, where he is taunted both for his class background and for his scrawny physique. His fortunes seem to change one day when, in the presence of the elite clique led by David Prowse, he wittily tells off the acerbic Sheilagh Fielding, a student at the affiliated girls' school, who affects a walking stick and a manner beyond her years. After that Smallwood is accepted, given the role of court jester. Fielding apparently gets her revenge, though. A letter denouncing the school arrives at a local newspaper, its text made up of words cut out from a book. The letter is forwarded to the snobbish headmaster; circumstantial evidence points to Smallwood; he is expelled.

Questions about that letter, its authorship and even the identity of the cut-up book recur again and again in the course of the novel, forming a mystery that only deepens with the years. Prowse recurs, too, never straying far from his role as a symbol of entrenched class power. But it is Fielding who looms largest. She is the book's great creation (for all that she may well be as historically verifiable as Smallwood himself), and the profound but wavering, ambiguous and ultimately doomed love between her and Smallwood is the novel's heart and soul. She is as big as he is small, as ostensibly self-assured as he is assailed by doubts, as much a child of privilege as he is hobbled by his background. On the surface they appear an unlikely match, but in actuality they fit together as if they were halves of one being. What keeps them separate is his pride and a burden of knowledge she shoulders alone nearly to the end.

Smallwood is restless, idealistic, burning with wayward ambition, but it is Fielding who guides his steps. After his dismissal from school she steers him toward journalism. When, upon his return from covering a disastrous seal-hunting expedition, he decides to become a Socialist agitator, she takes it upon herself to act as his advance party, exhorting dockworkers to attend his speeches, even though she doesn't particularly share his beliefs. When, fed up with the limited horizons offered by his native land, he sets out to seek his fortune in New York City, she follows him there.

But after a few miserable years spent almost entirely within the orbit of the expatriate Newfoundland community, Smallwood comes home and embarks on a grandly insane plan to unionize the island's railroad employees by walking the entire length of the rail system, visiting every one of the track workers' shacks set out at one-mile intervals along its course. Fielding -- fortuitously present -- rescues him from certain death during a blizzard that overtakes him on the way. It is only when he begins to organize popular support on behalf of confederation that she, by then a newspaper columnist read and feared by all, becomes his opponent.

By that time, you might wonder whether she isn't meant to be the incarnation of Newfoundland itself. Not only is she physically large, with unvisited extremities and a nearly unknown heart, a bad drinking problem and a disposition given to melancholy, blunt truth and savage wit, but she is also the author of a ''Condensed History'' of the island, whose brief, sardonic chapters are interspersed among the chapters of the narrative. These are probably funnier if one has some knowledge of Newfoundland history, but there is no mistaking their cumulative gist, the chronicle of disappointment and failure, and of plunder and dupery and contempt by others:

''Luckily for Newfoundlanders . . . there is a non-elected, governor-appointed Senate-like council consisting of six clearsighted Protestant opponents of self-rule, with absolute powers of veto. By sending back all bills sent to it by the House, this council brings the business of government to a standstill. . . . If not for them, the 1830's would have seen the Poor Relief Bill passed in spite of the opposition to it of the poor themselves, on whose behalf the merchants marched in protest through the streets.''

If we follow the logic of these installments, Smallwood by the end comes to stand as the latest in a long line of meddlers who have sold the island for chump change.

The very human story of Smallwood and Fielding and its historical counterpoint may both appear inauspicious, even contrived, at first, but as the book proceeds they and their pairing gather momentum to achieve a mesmerizing inevitability. The one ultimately results in heartbreak while the other sustains an austere irony, and their synthesis makes for a novel of cavernous complexity that nevertheless doesn't overwhelm the reader, who can repose in pure narrative without second thoughts. The island of Newfoundland, meanwhile, comes off as a formidable entity that will always dwarf human beings, reduce them to drink or triviality or defeat. ''The Colony of Unrequited Dreams'' may not increase its tourist trade, but Wayne Johnston's eloquent anti-epic is in its thorny way a respectful tribute to a place more willful than even its toughest inhabitants.

Drawing (dusan petricic)