Whenever people see old systems still in production (say things that are over 30 years old) the assumption is that management refused to fund the replacement. But if you look at replacement projects so many of them are such dismal failures that's management's reluctance to engage in fixing stuff is understandable.
From the outside, decline always looks like a choice, because the exact form the decline takes was chosen. The issue is that all the choices are bad.
Broad changes in the distribution of wealth, and government spending on education sharply declining, levels of critical thinking and open-mindedness have declined.
So now, if something can be made thats part of an existing franchise or consumer favoured products, then thats lower risk. It attracts more capital. Full on remakes again and again with idiots generally accepting bad games on nostalgia value means sales even of a bad game remain palletable.
I dont think the west is going backwards in capability, but people seem incapable of highlighting what has changed