This is the fifth 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.

The 20th century began on a military note. The islands of Hamilton Harbour were used to house prisoners of war from the Second Boer War in South Africa. Perhaps it was this connection between Bermuda and South Africa that caused Cecil Rhodes, the lightning rod for the war, to include Bermuda in his scholarship bequests for a Bermudian to attend Oxford University every year.

The First World War prompted a lease of White’s Island and Agar’s Island to the Americans as Base 24, which serviced submarine hunters that were being used to protect transatlantic shipping. This injection into the economy was not nearly as great as the impact of the leases of the Second World War.

As agriculture went into decline in the 19th century, a successful tourist industry began to manifest itself.

The Hamilton Hotel was the first on the island. It was built as early as 1852 and opened its doors in 1861, publicly funded by the Corporation of Hamilton. It was destroyed by fire in 1955, although by then it had long since ceased to be a tourist facility.

The Princess Hotel opened its doors in 1885. This 400-room hotel continues to be one of Bermuda’s luxury hotels. It was named in celebration of a visit to Bermuda by Princess Louise, the daughter of Queen Victoria, who had visited the island two years before. Princess Louise visited from Canada, where she lived with her husband, the Duke of Argyll, who was Canada’s governor. Princess Louise had visited the island for health reasons and called it a place of eternal spring.

Bermuda is directly east of North Carolina at 32 degrees north. Although well north of the tropics, the Gulf Stream warms the climate to a point that it would not otherwise be. Its near-tropical climate made it a relatively close getaway from the crowded north-eastern seaboard of the United States and Canada. It was particularly attractive in the days of sea travel, except that the same Gulf Stream that warmed its climate, especially in winter, made it a rough crossing for ships. Mark Twain, a frequent visitor, said it was like going through hell to get to paradise.

In the early days of the travel industry, when only the rich could afford it, well-heeled visitors from North America and Britain frequently made Bermuda their winter home. Add to the celebrity of Princess Louise and Mark Twain personages such as James Bond novelist Ian Fleming, and word quickly travelled among the rich and famous that if Bermuda wasn’t heaven, it was certainly Heaven’s waiting room.

Even the military backdrop was used to advantage, as military officers were encouraged to attend hotel social gatherings where the rich and famous put their daughters on display for the benefit of military officers.

The military backdrop to the growth of the tourist industry guaranteed its continued presence by the outbreak of the First World War and Second World War. Beginning in 1609, Bermuda’s defence was left in the hands of local residents until 1701 when it became the responsibility of the British army until 1957 on the departure of the last garrison soldiers. From the 19th century, the garrison’s primary responsibility was the defence of the Royal Naval Dockyard. What was left after 1957 was the Bermuda Militia Artillery and the Bermuda Volunteer Rifle Corps until 1965, when the two units became the Bermuda Regiment. By 1900, the Bermuda population had reached 15,000, one quarter of whom were military personnel.

The evolution of the construction of the forts and coastal fortifications around the island was an integral part of the island’s defence from its beginning onward and is a testimonial as to why the English were the only great power to occupy the island. The building of the dockyard was an ongoing project whose growth led to simultaneous development in the land-based defences. This included the updating of the coastal artillery.

The Royal Engineers were always a part of the garrison, and in addition to redeveloping the coastal defences, they carried out surveys of the island, put in a military road system that connected the various islands and installed Gibbs Hill Lighthouse. Before the military roads, communications on the Island was mainly by sea, which meant that most land roads simply led to the water.

Mount Saint Agnes Academy was also a product of the garrison. The school was opened to fulfil the needs of the Roman Catholic officers who were members of the 86th (Royal County Down) Regiment of Foot, which had been stationed in Bermuda.

Britain had seen Bermuda primarily as a military outpost. Bermuda had no resources to be exploited for the benefit of the British economy. Nevertheless, the British were anxious that Bermuda should contribute to her own defence and the purpose she fulfilled within the Empire. Britain did not allow foreigners to invest in Bermuda lest that investment should be an excuse to allow in persons who were not loyal to the Crown and be an excuse for an invasion.

To promote tourism, Bermudians wanted American investment for the building of the Princess Hotel and the widening of the St George’s Channel. Britain used these tourism needs as leverage to get Bermuda to provide some of her defence needs. Bermuda’s reaction was to establish the Bermuda Voluntary Rifle Corps and the Bermuda Militia Artillery. Provision was also made to fund a submarine unit, which, surprisingly given Bermuda’s marine history, was never activated.

Some 500 Bermudian volunteers fought on the Western Front in the First World War, 80 of whom died — this from a population of only 19,000. While Bermuda was not in the war theatre, there were many who served in the Home Guard. There were a few Germans who were interned on the island, from both captured German ships and German nationals living on the Island, Herbert Bierman being the most prominent.

Although Princess Hotel was built for visitors, the builders had no idea of the kind of visitors that would be housed there once war broke out in 1939. The hotel became home to servicemen and the centre for British Imperial Censorship. Twelve hundred censors secretly examined mail, radio and telegraphic traffic between the United States, Europe and the Far East. A number of arrests were made because of their work, including the break-up of the “Joe K” spy ring. A Man Called Intrepid, a movie, was supposedly based on the life of Sir William Stephenson, who lived at the Princess before buying a house in Bermuda.

Unknown to many, an Enigma machine revealing the German codes that were broken at Bletchley was actually taken from a U-boat captured in Bermuda waters. Captain Harald Lange, the captain of the U-boat, was actually held captive in Bermuda for nine months, so the Germans had no idea that the boat had been captured with the Enigma machine on board.

Just as the English had used Bermuda to keep the Americans away from her interests in the Atlantic, so the Americans used Bermuda to protect themselves from German attacks at the outbreak of the Second World War.

America negotiated with Britain for the establishment of two bases on the island. When the bases closed in 1995, it was estimated that they constituted 20 per cent of the island’s gross national product. During the war, Bermuda obtained much exposure to what became the American tourist market as a result of the convoys that formed in Bermuda for the transatlantic crossing with supplies and men for the war front in Europe and North Africa. This exposure meant that Bermuda was able to benefit from pent-up American consumer demand brought on by the war. Thus Bermuda was able to enter its heyday for tourism after the war.

This heyday was fuelled by the tremendous technological changes in air travel and the expansion of the cruise ship business, along with the increase in investment in hotels and cottage colonies being built on the island. Elbow Beach was built between 1908 and 1912. Then there was the St George’s Hotel, Castle Harbour Hotel, Sonesta Beach Hotel and a slew of cottage colonies such as Grotto Bay, the Reefs, Cambridge Beaches, etc.

The most decisive commitment to tourism was taken in 1920 with the formation of the Bermuda Development Company. Bermuda had secured the services of the steamship company Furness Withy to provide regular shipping services to Bermuda from New York. The steamship company was desirous of spreading its risks by carrying people in addition to cargo. For this reason, they promoted the idea of helping Bermuda to develop a tourist industry. To this end, they selected what they considered the best part of Bermuda, where an all-inclusive tourist development could take place.

Legislation was put in place for the company to compulsorily purchase the land in Tucker’s Town irrespective of its asking price, and the residents moved off. This remains a political issue up to the present time. As a result of the land purchase, the Castle Harbour Hotel was built, along with the Mid Ocean Club and the two golf courses in the area. Individual lots were sold off for residences for wealthy non-Bermudians. The area has now been transformed into what has been named Tucker’s Point.

It is not only the rich and famous who live there, but world leaders have conferenced in Bermuda and have been seen by tourism officials as advertising props for the industry. Land purchases by non-Bermudians is still restricted except for highly priced property being bought by internationally well-known personalities. In the 1930s, Pan Am founder Juan Trippe invested in the project and his family’s interest continues until today.

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