The divisive crisis

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Britain is likely to see some weak and fragile economic recovery in early 2010, but the crisis will continue to shape politics in the months ahead.

Recent data shows that 2009 saw the biggest contraction in the British economy in a single year since 1921.

The world economy is not in permanent slump. The major G20 economies, with the exception of Britain, moved out of recession by the third quarter of last year and China grew impressively in 2009. But the measures taken to escape from recession will shape what happens next.

Karl Marx wrote that crises could restore the system to some semblance of health, both by squeezing workers and through the "annihilation of a great portion of capital". The destruction of unprofitable companies, the dumping of unsold goods, including equipment that can be bought by other firms, and the restructuring of surviving companies provide an enormous boost to the system. That is why the depression of the 1930s and horror of the Second World War created the conditions for the post-war boom.

So far, the current crisis has not cleared out the system sufficiently for such a boom. In the 1930s it took about 40 months before the British economy saw rapid growth and several major economies collapsed far more than today. Only the mobilisation for war regained momentum for many of them.

This time round, bailouts and stimuli helped put a floor under the collapse - but also prevented the crisis remedying underlying problems. So growth is still weak. The symptoms that marked the system before the crisis are returning. The share of profits going to the financial sector and obscene City bonuses are rapidly approaching pre-crisis levels.

There are still vast global imbalances between the big East Asian export economies and those of the West that both borrow and buy from them. Personal debt is back too. The celebrated Christmas splurge of consumer spending in Britain - due to rising prices rather than growing sales - was largely debt-financed. Even the bloated housing market is beginning to swell once more, with prices rising steadily since April following a 17 percent drop.

This explains why any hint of further problems can send panic through markets - as when Dubai World defaulted on its debt last November, amplified by fears that Greece might default on its sovereign debt.

Similarly, the announcement by Barack Obama that he would cut down the size of the big former Wall Street banks, which so far remains a grand gesture rather than a detailed proposal, caused further tremors on stock markets and anger among sections of the global elites.

The other reason for the fragility is that the recovery is heavily dependent on state spending. At some point states will try to rein this back in, and many will savagely attack the public sector to pay back debt. In Britain such an attack is certain - whoever wins the general election. This risks pushing economies back into recession. It also creates a potentially explosive political situation. Deciding when and how to cut back will further divide ruling classes that have already seen their legitimacy undermined by the crisis.

Recent months have seen sparks of resistance as groups of workers have taken action or voted to strike. The challenge for socialists is to continue to support, strengthen and build on such struggles.