I'm just not sure that elite level clubs are best placed to bring talent through anymore. They can hoover up the best talent in each age group and they can provide great facilities but on the whole but they just don't seem to be able to manage the last step of introducing them into the first team (which i'm starting to think is probably the most important).
The loan system doesn't seem to work all that well as clubs in the lower leagues have their own short term goals. You could loan a great youth player to a championship club and then it becomes apparent it's going to take the best part of a season for them to come to terms with the physicality of senior football. What incentive do they have to persevere with/develop that player if they stand to gain no long term benefit? If these players actually belonged to the lower league clubs and they stood to gain from either selling them or having them in their team long term, then I expect we'd see them getting more game time and developing to their full potential more quickly.
I'm not really sure what the answer is, if the national team stands to benefit maybe the FA could offer incentives. If we said to a club if a player makes x number of appearances for your first team before the age of 23 and goes on to win 20+ England caps, you'll get a £5m development fee, maybe we'd see lower league sides really giving these kids a go. If I had a kid who had the prospect of going places, as much as it pains me to say it, im not sure a club like City is the best place for them in the long term.