Theory development led to what Schumpeter calls 'the pedestrian view that capital per se propels the capitalist engine'. The West started thinking that by sending capital to a poor country with no entrepreneurship, no governmental policy and no industrial system, they could produce capitalism. The consequence is that today we virtually stuff money down the throat of countries with no productive structure - where this money could be profitably invested - because they are not allowed to follow the industrial strategy all the presently rich countries followed.
Developing countries are given loans they cannot profitably utilize, and the whole process of development financing becomes akin to that of chain letters and pyramid games. Sooner or later the system breaks down, and the ones who designed it, standing close enough to the door when everybody rushes out, are able to make good financial profits, while the poor countries themselves are the losers. This is part of the mechanism that often creates larger flows of funds from the poor to the rich countries than the other way around, one of Gunnar Myrdal's 'perverse backwashes' of poverty.
-- "How Rich Countries Got Rich" by Erik S. Reinert p. 124
- Dead Aid: counter proposal
- Development and under-development: a note on the mechanism of national and international economic inequality (Gunnar Myrdal)
- Rich lands and poor; the road to world prosperity (Gunnar Myrdal)
- Production Capitalism vs. Financial Capitalism - Symbiosis and Parasitism. An Evolutionary Perspective (Erik S. Reinert & Arno Mong Daastøl)
- Development and Social Goals: Balancing Aid and Development to Prevent ‘Welfare Colonialism’ (Erik S. Reinert)
- How rich countries got rich... (Erik S. Reinert)