A world apart Geopolitical illiteracy will wreck your business. Firms must grasp knowledge of the Great Fragmentation

That David Cameron would win the 2015 election with an unexpected – if slim – majority. But, within 17 months of that triumph, he would be forced from office after calling and losing a referendum on Britain’s continued membership of the European Union. Following his departure, there would be four more Conservative prime ministers in little more than six years, before an election in July 2024 that would witness a Labour landslide and the worst ever Conservative outcome.

That Donald Trump, a real-estate developer and media personality, would stand for and secure the post of president of the United States, lose that position four years later, refuse to accept that defeat to the extent of seemingly welcoming an insurrection against it, then return to the White House stronger than ever in January 2025.

That Vladimir Putin would attempt a full-scale invasion and conquest of Ukraine.

That the rise of China, largely welcomed over the previous 25 years, would be fundamentally reassessed and viewed by some – possibly many – as an existential threat.

That Emmanuel Macron, then a relatively obscure minister with no meaningful electoral history, would become president of France in 2017 and be re-elected in 2022, but two years later face a National Assembly dominated by the hard-left and the extreme-right.

That a far-right party would win more than 20% of the vote in Germany. And, combined, the hard-left and far-right would exceed a third of the total vote.

That the seemingly most stable major country in Europe would be Italy; and that Italy’s first female prime minister would lead an entity called ‘Brothers of Italy’ with links to groups that supported Benito Mussolini; had only existed since 2012; and in 2013 obtained just 2% of the ballots cast in a general election.

Had such a piece been published in Director in 2015, it’s fair to assume that the sanity of its editor would have been called into question. And, even if this unlikely set of predictions had featured as a thought experiment, IoD members might well have asked themselves how on earth anyone could conduct business in such a wild and unpredictable environment. Yet, in 2025, this is precisely the world in which we live.

A fundamental shift

This extraordinary upheaval is not a series of coincidences. It is a chain of events. It reflects a fundamental shift in geopolitics, which is still shaking the system and may be some time from settling. Appreciating that even very large companies are metaphorical corks on a choppy sea is essential for chairs, chief executives and boards.

Organisations – be they private, public or not-for-profit – do not exist in a void but within an order. The internal decisions they take are crucial, of course. But external factors matter too and – in certain circumstances – will recast the conditions in which they operate. It must by now be increasingly apparent to senior leaders that the past few years have seen seismic shifts.

The international environment for the three decades from 1990 to 2020 was clearly different. It was defined by a system, or order, in which the United States was the sole economic, political, military, technological and cultural superpower. Others could make partial claims to pre-eminence in one or other of these spheres, but none could come close to being a serious competitor to the US in all of them. In truth, no nation was even devising a determined approach to mount such a challenge. This American-dominated architecture survived the Gulf War of 1991, the Balkan conflicts of the 1990s, the terrorist attacks on the US in 2001, the Iraq War of 2003 and the global financial crisis of 2008.

It was one of three pillars in which a benign economic regime was secured. Another was the taming of inflation in the developed world, which was largely credited to the enhanced autonomy of central banks. The final aspect was a liberal trading order, which had extended due to China’s integration into the global economy. This was an event with an immense effect because it allowed for robust global growth without inflation. While there were protestors pushing protectionism, they huffed and puffed from the sidelines. The intellectual consensus behind free and ever-expanding trade shaped international economics.

The Great Moderation

A force demands a phrase to summarise it. The term that eventually acquired that status was ‘The Great Moderation’. These words started life within a relatively technical paper published in the US by two economists, James Stock and Mark Watson, in 2002. They observed that the business cycle in most advanced countries had become longer, smoother and less extreme in character. They then tested a set of potential explanations for this outcome, exclusively economic, not political.

As a concept, The Great Moderation would enter a period of hibernation. It was revived when Ben Bernanke, then a member of, but soon to become chairman of, the Federal Reserve Board, used it as a theme in a 2004 speech. The Great Moderation had found a new constituency. It was from there that others began to stitch together its political and economic elements.

The post-Cold War international structure was the platform that made economic stability viable. The comparative success of the policies embraced allowed free trade to flourish. It appeared, at one stage, that the global financial crisis of 2008 might bring The Great Moderation to an end, but what followed from 2009-2020 was the longest recorded US economic expansion. (In retrospect, though, the writing was on the wall from Brexit/Trump in 2016).

America’s prolonged expansion may be because The Great Moderation was the ideal backdrop for a series of transformative, but contentious and disruptive, technological innovations that would completely alter the economy. These forced the pace of globalisation and saw whole sectors change at warp speed.

This was the order in which today’s senior leaders – heading listed companies, private businesses, the professional services, the public sector, or not-for-profit entities – cut their teeth and established their credentials. It allowed them to make (often unacknowledged) assumptions that determined the direction in which they were able to take their organisations.

The Great Fragmentation

The Great Moderation is, alas, now no longer with us, and it is extremely unlikely to return. It has been undermined by: the increasing influence of populist politics in a wide assortment of countries; the intense impact of a pandemic whose impact on society and the economy we are yet to fully understand; and by Russia’s invasion of Ukraine.

The march of populism has not only reignited inflation, disrupted supply lines of sizeable significance and sparked an energy supply crisis of an epic scale, it has delivered a repudiation of the international order of the last three decades. To many, it is just a dress rehearsal for a world in which the US and China become open adversaries.

This then is where we are today, in the early stages of The Great Fragmentation. We can see what is diminishing – the undisputed dominance of the US as an international actor; the ability of central banks to becalm inflation almost at will; and the strength of accelerating free trade as
a doctrine.

What is much harder to anticipate is whether The Great Fragmentation is itself the new world order, or merely a short interlude before an entirely original geopolitical order takes its place. These are the waters that those at the helm of businesses internationally now must navigate.

All this matters to anyone aspiring to lead any organisation, whatever its form. It means that risk must be reassessed – what was recorded in risk-registers past is rendered redundant. It obliges chairs and chief executives to anticipate and adjust to what could be coming at them. Strategies that only include internal sectoral metrics are like holding a sword without a shield.

We need to see The Great Fragmentation for what it is – and react to it. This is an age of adapt  or die.

Geopolitics has ceased to be an abstract, academic matter, and is now evident in company accounts. The blunt reality is that – with the exception of microbusinesses (and even they can be swept up by geopolitical change) – almost every UK firm with a supply chain that extends beyond the UK (or which has, or would like to have, customers beyond these shores), are at the mercy of the forces of fragmentation. The most dramatic example is the extent to which the Trump administration is determined to make substantial increases in tariffs a central part of an entirely new approach to economic policy – in which countries, sectors and companies become targets. Even the best business plans would struggle to survive a trading earthquake of this scale.

ESG: events, shocks and geopolitics

All of this means that British companies must think differently about the world order around us. There is now what might be described as a new ESG out there – events, shocks and geopolitics. The first step in addressing this is understanding the magnitude of this change, and that it is not short-term.

Business needs to invest in advice. It is possible to anticipate at least some of the challenges ahead. Arming oneself with geopolitical knowledge is neither an impossible nor a necessarily expensive exercise. It does, though, involve rather more than acquiring copies of the Financial Times and the Economist. As distinguished as these esteemed media outlets are, they tend to be both articulate and sophisticated advocates of a conventional wisdom that has been largely superseded by a geopolitical revolution. They have a touching faith in a free market and free-trade structure that has been utterly upended.

Change, as always, offers opportunities. The businesses that will prevail will be those that have put the time and effort into thinking about how different the world of 2035 will be from that
of 2025.

Those who have a sense of geopolitics will add real value to market share, and to their bottom line. Those in denial about the times in which we live – or who refuse to adapt to them – will not survive.