This is so true.
Early in my career, I was in a big organization, surrounded by people like this. Our direct manager was not competent to assess their work output on any technical level. He might not have cared anyway, since the true measure of management is how large your pool of subordinates is.
It was truly soul-sucking to be surrounded by such mediocrity. I'm all for work-life balance, but having counterparts who accomplish so little is demoralizing.
I can almost convince myself that there's a strategy in it -- with 15 people doing the work of 3 people, a very large bus accident will probably have very little impact on business operations.
It killed me though. I left and went into consulting for a few years. Then startups, where 3 people are expected to do the work of 15. Which can be its own problem, of course!
The aforementioned co-workers? Still at the same place, and honestly they're probably pretty safe (financial industry, revenue is barely affected by macro economy). Goodness help them if they ever need a new job.
EDIT: Nowadays, I hire and manage people. My expectation of the team is to be "productive" about 20hrs/wk, ebbing and flowing according to personal life flux, but making an honest attempt to give the rest of us enough to rely on.
I hope to hire the kinds of people who will use some part of the remaining time to reflect on how to improve something, somewhere -- sometimes including our work product or processes. This is where the interesting stuff happens, when it does.