Wouldn't it mean that their entire organization is broken, if they can't effectively identify productive and talented people? This seems like a huge problem!

I agree that Google benefits from monopolizing headcount, even if the employees waste their lives doing nothing, because it reduces competition. I would even Google poisons people's work ethic/priorities permanently when they try to leave and go to other startups (this is my personal experience working with former non-technical google employees who only play politics).