Few viable technology businesses and non-technology busiesses with internal software departments were prepared to see their software engineers suddenly suddenly expect doctor or lawyer pay and can't effectively accomodate the change.

They were largely left to rely on loyalty and other kinds of fragile non-monetary factors to preserve their existing talent and institutuonal knowledge and otherwise scavenge for scraps when making new hires.

For those companies outside the specific Silicon Valley money circle, it was an extremely disruptive change and recovery basically requires that salaries normalize to some significant degree. In most cases, engineers provide quite a lot of value but not nearly so much value as FAANG and SV speculators could build into their market-shaping offers.

It's not a healthy situation for the industry or (if you're wary of centralization/monopolization) society as a whole.

In general, it's probably not sustainable (with some exceptions like academia that have never paid that well leaving aside the top echelon and that had its own benefits) to expect that engineering generally lags behind SV software engineering. Especially with some level of remote persisting, presumably salaries/benefits equilibrate to at least some degree.

Why should internal software departments be viable? Isn't it a massive waste to have engineers write software to be used by a single company?

That business can search and find talents globally for fraction of SV salary.

If FAANG company can hire an engineer overseas for 60k$ annually why other cannot?

Because maintaining the organizational infrastructure to coordinate remote teams dispersed to time zones all over the world and with different communication styles, cultural assumptions, and legal requirements is a whole matter of its own?

Companies that can do that are at an advantage over those who can't right now, but pulling that off is neither trivial nor immediate nor free.

I worked for a company that was very good at that. It resulted in software organizations in 50+ countries.

I had teams in North American, Europe, Russia and East Asia. It resulted in a diversified set of engineers who were close to our customers (except in Russia where the engineers were highly qualified but few prospects for sales). Managing across cultures and time zones is a competence. Jet lag from travel was not as great...