I work with an Indian outsourced team. It's not as simple as that. I don't think that they are particularly stupid. but,There is a big communication barrier. Just a few days ago, I asked them to do a very simple task (at least I thought it was simple), and they didn't do it right. It wasn't because they were incompetent. Looking back the email, I could have been a lot more descriptive. They probably need to ask me some questions or they needed more clarification, but I was asleep while they were working.
There is only so much that the Indian teams can do, and because of the language and cultural barrier, time zone difference and plus the long distance, I personally feel like I can't rely on them to do anything really important.
For your other point: People aren't going to flood STEM. That's just not going to happen. You're making a big mistake and you don't really understand the purpose of a degree from the perspective of an employer or even our society. The degree is used to identify someone with a particular temperament and intelligence level. When everyone has a degree, the degree won't act as a sift anymore. But, people will find other ways sift out the dumb-asses: School rankings, Higher GPA standards, more emphasis on the interview, internships, work experience.
for your last point: The third world countries don't practice capitalism. In Indonesia or the Philippines, the top are the Chinese, and way down below are the Malays. I don't think it's just the economic system that causes that gap. Thomas Sowell's, "Race, Economics and Cultural" and Amy Chua's "World on Fire", have pretty good descriptions of the common patterns in the third world. I don't necessarily agree with their theories though. There is a cultural difference, sure but overall, I think the Chinese are just more naturally built to be merchants and traders.
Here is an except from the recent pew institutes analysis of American Economic Mobility.
http://www.pewtrusts.org/uploadedFiles/wwwpewtrustsorg/Reports/Economic_Mobility/PEW_Upward EM 14.pdf
Cognitive ability is the best indicator of Upward mobility, and it correlates a lot better than social economic class, or other non-cognitive traits. We are probably reaching a steady state where all the smart people have been pulled up, and it gives the appearance of unfairness and economic inequality.