Based on my experience, you are most certainly correct that the companies using leetcode aren't following any line of reasoning, and certainly not one as sophisticated as what the parent is implying. Most decisions made by "leadership" are irrational and self-destructive as you describe there (your book looks very interesting btw).
However what the parent is claiming, as far as the effects of the leetcode interview process is certainly true. I also think that the parent is correct in that these, perhaps unintended, consequences of leetcode interview in attracting a docile though technically competed work force are beneficial to large organization.
I also think the parents second comment, about these consequences not being beneficial to startups ultimately aligns with your view: startups do great harm to themselves by mindlessly aping the behavior of big name tech cos, mostly out of ego and fear.