Protecting the industry with trade barriers definitely sounds like the way to make it competitive.

If we do this our IT industry might one day lead the world, like our sugar industry, automotive manufacturing and softwood lumber do.

Or: Like the South Korean electronics industry does.

One other thing is that the traditional entry route to software for the non-traditional candidate was via the helpdesk or QA department. You got your foot in the door, impressed the established engineers by turning around tickets quickly or by writing comprehensive bug reports, then when they needed another developer, you got the tap on the shoulder. Some of the best engineers I've worked with have come in through this route, including the best manager I've worked for.

If these kinds of positions are outsourced, how do we tap into that seam of talent anymore?

If dev is outsourced, then they'll be right there in the building when they need to tap a QA shoulder.

I've seen this method of advancement with those around me at where I work. However, I've had the exact opposite experience that you have had. Although, I'm willing to admit to selection bias regarding the sample of candidates.