Good question. This is a difficult issue, because I truly believe that it would be happening, even if the global financial crisis had never occurred.
Here's the short answer: There will ALWAYS be a market for low-quality work. And there are millions of low-quality service providers ready and willing to meet the need. For those of us who provide a higher-level service, the important thing is to stay focused on the fact that not every client is looking for a cheap, substandard product, even when so many others are flocking to that market.
Here in the U.S. we have a grocery chain by the name of Whole Foods. This company sells premium, organic and local products. I estimate that, on average, you'll pay at least 20% more at Whole Foods than you'll pay at the low-cost grocer, Walmart. Yet Whole Foods is growing at a very healthy rate. They just reported a 23% increase in revenue from the same period last year. Profits are also up. And all this is happening right in the middle of a very difficult economic period.
How is that possible, when competitors like Walmart are selling similar products for a lot less? They recognize that people who shop at Walmart are NOT their base. Instead, they focus on catering to those who appreciate quality ... and are willing to pay more for it.
It's the same thing when it comes to freelancing. There are plenty of clients that are willing to pay for your experience, skills, knowledge and creative energy. But first you need to know who they are. Then you need to communicate that value clearly in everything you do.
As I mentioned to someone a little earlier, start by looking at industries, sectors or segments that are selling high-margin products or services. I would also look for organizations that sell "must-have" products/services. In other words, products/services that solve an urgent problem, as opposed to something that's just "important" or "nice to have."
I'm a big believer in finding your own clients.
It's OK to have some work come to you via agencies or brokers. But in the long run, a significant percentage of your income should come from direct clients.
As I suggested to someone earlier, start with your existing network. Your chances are always higher if you're introduced to a prospect by a trusted source.
Next, create a list of organizations you feel would be a good fit for you. Try to focus on organizations where you would have a higher chance of getting hired—either because of your background, your work experience, your track record, specific skills, etc.
For instance, say you worked in the food and beverage industry (in IT) for 6 years. That gives you an edge over other IT pros who are pitching these organizations. So start your search there, and focus on companies in that industry which you believe place a higher priority on IT.
Bottom line: take a focused, systematic approach based on where you can get the quickest wins - both by starting with people who know/trust you and by going after prospects that will quickly see that you already understand their business and industry.