This is the first in an eight-part series that takes an incisive look at the Bermuda economy, historically from our humble beginnings to the 21st century and the challenges faced by the Progressive Labour Party government

In trying to put any situation into a historical context, it is always difficult to decide where to begin; it is also difficult to decide how much detail to include. In the case of Bermuda, there is a distinct beginning.

Bermuda was discovered in 1503 by the Spanish explorer Juan de Bermudez. For more than 100 years, what has become one of the most prosperous countries in the world was bypassed as an Isle of Devils. Finally in 1609, by force of circumstances, it was settled by the English Virginia Company. The company had obtained a charter to settle Virginia, and the adventurers, on their way to Jamestown, Virginia, managed to wreck the ship on the shoals of Bermuda and come ashore without any loss of life.

The Virginia Company administered the island until 1614, when a separate company, the Somers Isles Company, took over ownership of the island until 1684, when the company’s charter was revoked and Bermuda became an English Crown colony. Bermuda is now the oldest and most populous remaining British colony. The economic development of Bermuda began within the context of a private company, but as early as 1620 there was a local parliament introducing local thinking into the world of ideas.

One of those world ideas, which is worth referencing, is taken from the Book of Acts Chapter 17 when the apostle Paul addressed the Athenians on the subject of nationhood. It is worth quoting from the amplified version of the Bible:

26, “And God made from one [common origin, one source, one blood] all nations of men to settle on the face of the earth, having definitely determined [their] allotted periods of time and the fixed boundaries of their habitation (their settlements, lands, and abodes),

27, “So that they should seek God, in the hope that they might feel after Him and find Him, although He is not far from each one of us.

28, “For in Him we live and move and have our being; as even some of your [own] poets have said. For we are also His offspring.”

The times and the boundaries of Bermuda are clearly delineated historically. The question then arises: have we sought after God?

During the Middle Ages in Europe, their entire economy was based on farming. In addition to land, farming requires a man’s labour. There was very little in the way of capital equipment — perhaps a hoe and, if you were wealthy, a plough and an ox. The system was known as serfdom. A man owned his own land and no one as a matter of law could take it from him. But perhaps more to the point, the land owned the man, as he could not sell it or even give it away. He was tied to the land.

The social and political structure was feudal. In any given geographical area, security was provided by the feudal lord who ran the Manor House and provided soldiers for security. The manor was supported by the serfs who might give so many days out of the year to work on the manor lands to support the lord and his knights. This would be determined by the lord of the manor. While on the one hand, it appeared that a man had absolute economic security, on the other hand he was subject to exploitation and abuse by the lord of the manor.

It was out of that system that the very important ideas of mercantilism developed. The ideas that emerged from mercantilism were very much alive in the 17th century when Bermuda was settled, and are still very much present in Bermuda today.

The much heralded Magna Carta of 1215 delineated the rights of the king. The king did have certain rights that he was able to use to his advantage. He was able to provide freedom for individuals to leave the land and live in towns. This freedom to live in the towns could also be granted to strangers. These town dwellers owed their allegiance not to the manor lords but to the king.

The town dwellers formed the nucleus of a trading class engaged in commerce. This commercial class was given impetus by the crusades when people left Europe to travel to the Middle East for religious reasons, but in the process found societies that were much wealthier than their own, with goods that were heretofore unheard of in Europe. The system of granting special privileges to this new trading and commercial class had its real impact when it was extended to include the privilege of engaging in trade overseas.

Thus, the King of England gave the Levant Company the right to trade with the Ottoman Empire. The East Indian Company was given the right to trade in India, the Hudson Bay Company was given the right to trade in Canada and so forth. One of these companies was the Virginia Company, which had the right to trade in Virginia.

Of course, all of the European kings were doing the same thing, so while a charter from the King of England gave protection from other Englishmen, it did not give protection from the French or the Dutch. Of course, each king backed the company to which he had given a charter with his navy and his soldiers. So every few years there was a war and a redivision of the markets. The French got Canada and later lost it to the English. The French got Indo-China; the Dutch got Indonesia; the English got India; the Pope gave Brazil to the Portuguese and the rest of Latin America to the Spanish.

It was against this background that Adam Smith wrote his famous book entitled The Wealth of Nations. The book was an effort to expose what Adam Smith considered the fallacious thinking within the mercantile philosophy.

He argued that the real source of a nation’s wealth was its productivity and not in a nation’s propensity to amass gold or silver in the mercantile system. It was Smith’s idea that government should not be giving exclusive rights or monopolies to individuals or companies, but that the wealth of a nation increased where anyone and everyone was allowed to enter freely into the marketplace. It was competition that increased productivity and lowered prices.

Today, most Western countries — and indeed with the collapse of the Eastern bloc — espouse these notions of “free enterprise”, but nonetheless they still retain elaborate systems of licences that restrict entry into business.

The things that Smith did not count on was the development of monopolies, the business cycle and unemployment. As a response to these conditions and some of the horrific social conditions that we read about in stories like David Copperfield that the socialist and communist thinkers offered their solutions. Most of these solutions envision some form of government intervention and ownership of the means of production.

With the collapse of the Eastern bloc of countries, these socialist and communist theories have become discredited, although you would be hard-pressed to find any government that does not own significant enterprises and infrastructure projects; whether it is the transportation system in Bermuda or the Tennessee Valley Authority in the United States.

One of the policies pursued by the Conservatives in Britain under Margaret Thatcher was for the Government to sell off government-owned assets that had been nationalised under governments influenced by socialist thinking. This policy has been followed in many of the Third World countries at the behest of the World Bank and the International Monetary Fund.

• Arthur Hodgson is a former Cabinet minister, Rhodes Scholar and graduate of Oxford University in England, where he studied philosophy, politics and economics