Before we go down the less teams = better because its harder to get into a team, lets actually look at some numbers
These are estimated populations in 2007 from a government website.
UK = 60,776,238
Aus= 20,434,176
UK Teams = 18, so that gives us approx 3.3 Million heads per team
Aus Teams= 8, so that gives us approx 2.5Million heads per team
So I really dont think that that argument carries all that much weight. As these figures would suggest that it is harder to get into an English team :P
I'd say its got a lot more to do with sporting culture and cricket's popularity and also the weather plays a massive part.
Cricket really isn't that popular in the UK, it fights for its popularity with a lot of other sports in a nation that isn't all that sporty (15th in the EU league table for time spent being taught physical education in state secondary schools and joint last in primary schools). In the UK cricket is seen generally as a upper class sport, its not played all that widely in schools and its not that popular as an after school/weekend occupation (or it certainly wasn't when I went to school and I'm in the same age group as a lot of International Cricketers). It did undergo a revival around 2005, but I doubt its changed all that much. And what did the ECB do to capitalise on this new found popularity? It signed an exclusive TV deal with SKY tv. A subscription service with (at the time) around 8Million customers, way to cut off your potential future players!
I think County cricket is probably played (these days anyway) just as competitively as its Australian counterpart, it might not have done in the past but it certainly is now. It is played with a little less sledging mind
As to overseas players, thats a tough one. European employees have equal rights to employment in member states and the Kolpak agreement has established that employees from countries that the UK has signed trade agreements with have equal employment rights. Quite simply it would be illegal to block the employment of players. It would not be illegal to limit the amount of foreign players allowed on the pitch however so it is possible (if there is a will to do so) to limit foreign players. You could have a system where only 2 non-english players were allowed in any given lineup because the clubs could employ more than 2 and rotate them, but I dont think County Cricket would accept such a system purely because they couldn't afford to sign a player and not use him. Blaming Kolpak players actually is a pretty weak argument, clubs sign players based on their ability and availability. If we produced more good young cricketers the clubs wouldn't feel the need to go elsewhere to sign someone. Certainly at Kent the club has imposed its own limits to Kolpak players (2) , don't know if they have changed that for this coming season in response to the reduction of overseas players allowed. I have no idea if other counties operate a similar system. In my view limiting overseas players to 1 has actually cut the number of places available to England qualified youngsters as clubs seem to have delved deeper into planetkolpak.
If English cricket is serious about improving its emerging talents the absolute first thing they need to do is improve the Second XI competitions. Second XI county cricket is a complete non-event, play more games and raise the profile. Some sort of televised competition would be ideal, even if it was only a "final" of a knockout competition that was televised.