The United States of America has dominated the sport of basketball since the first Olympic basketball tournament in Berlin in 1936, where the U.S. beat Canada 19–8.
From 1936 up until 1992, the U.S. sent a combination of players that played in the NCAA, NAIA, NJCAA, and AAU. The 1992 Olympics in Barcelona was the first time in history that the U.S. squad brought NBA players to the tournament. The Dream Team was formed.
Interestingly enough, the person who pushed for this change was Borislav Stankovic, the Secretary-General of FIBA from 1976 through 2002. Stankovic's views were always that the best need to compete against the best. He decided to make an official FIBA vote before the 1988 Olympics on whether NBA players should be allowed to plat. The final vote was 31 against and 27 for NBA players to join. What's even more puzzling is that the U.S. vote was against the idea! This means the people in charge of the U.S. camp sincerely thought they could win it all with college kids.
Here's what Stanković said the first time his idea had failed:
It is nonsense to have 200 million players in the world as FIBA members but not the 300 best players. Today it is a fact the U.S. professionals are much stronger, but only by playing with stronger teams can the rest of the world improve.
The U.S. amateur Olympic teams competed quite well until the mid-80s, and that's when they started experiencing problems with the strongest European teams at the time. Imagine sending NCAA players to play against European best professionals. The Europeans had caught up, and it was no longer sufficient to send college kids to bring home the gold.
Stankovic had pushed for another vote before the 1992 Olympics, this time the vote had passed, and for the first time in basketball history, NBA players were allowed to participate in the Olympics.