Earlier quoted context omitted.
Interesting! Do you have a specific example where it seemed to work fine for you? (The example where I learned was in diverse web communities, including Wikimedia.)
Take the most broad and crude measure, educational outcomes, as some, albeit imperfect input to the system and you'll see very unambiguously and consistently that kids with better grades will do better in life, in most measures. Next time you are at the office, look to your left, look to your right: you will notice conscientious people, probably educated, probably reasonably hard working, team work oriented, and prob…
If you are using modern (western) societies as your example; you will see a sophisticated system of laws, subsidies, taxes, education and health investments, etc... which are all at least in part designed to prevent this breakdown and make sure that people who have something to contribute get a chance to contribute to society, and hopefully get justly rewarded.
The counter-intuitive part is that the outcomes are more Merit-based than are possible if you directly institute a merit based system. (It seems that policy outcomes are almost never intuitive)