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The existence of the colonies in The Handmaid's Tale implies several things. First it implies that parts of the world have been destroyed and rendered uninhabitable or toxic. It is implied that this was through war and upheaval. The other concept implied here is that there is a horrible, dangerous place that those who refuse to follow the new government will be sent. The government is strict and ruthless. Citizens trying to go against them or use their voice and speak up will be punished. The word colonies usually has a positive connotation; however, in Atwood's world, colonies are not new worlds to explore, but old places where people are sent to labor, be punished and die.
Margaret Atwood is a Canadian author who in this futuristic dystopian novel externalizes two aspects of Canadian national identity, the position of Canada as a British colony and the relationship of Canada to the United States.
In Britain, during the seventeenth, eighteenth and nineteenth centuries, one penalty for criminals was "penal transportation" or exile to penal colonies. Many convicts were sent to what became the United States, and after the American Revolution, to Australia. The use of the term the "Colonies" suggests a return to the earlier practice of penal transportation, something ironic as the United States had been a dumping ground for convicts and in its reincarnation as Gilead is replicating this process of penal transportation.
Paradoxically, Canada, which did not rebel against British rule and technically only became independent of Britain in 1982, is portrayed in the novel as a place of freedom, while Gilead, with its established church, lack of religious liberty, and policy of penal transportation, is shown as replicating, and even amplifying, the faults of the British Empire from which it once rebelled.
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