You're absolutely right about the quality of internal development. Corporations should take advantage of hard economic times like these to recruit good developers (for more than corporations are accustomed to paying, but less than good developers are accustomed to making) and assimilate them into the corporate culture. After a few years, many of those developers will be comfortable and will be more interested in their wives and children than in their careers. It's natural that some of the talent that goes to startups in boom times should shift to corporations in bad times.
Won't work. Companies like that don't tolerate competence and creativity. Good developers will be beaten down by insecure and technically incompetent managers, even worse when you involve same from other departments. Requirements documents, high level design, low level design, review by the barely computer literate, turf wars, budgets that dont include your tools, internal standards, methodologies, and consultants. Sometimes even food on the table isnt worth it. Moreover the recruiters will recognize that the good programmer will be gone in 6 months and that will be another recruiting fee down the toilet.
