SPGo,
Well, if that is truly what is happening, and it's intentional, then that's neither one nor the other. That's a promotion system not based on ethics or standards but by cost or politics, neither of which are a sound basis for having the best people in the right jobs. A meritocracy has to be based on a management team who behave ethically and can be called to account when they don't. The onus there is on the management to be responsible, but I could be being naive to expect that (based on current evidence in the industry).
I think that kind of responsibility by management is possible, just not terribly common. Even in the military example, you get some dorks through because they need the numbers.
But why would you not want to promote the best as a matter of policy? Why merely go with "acceptable" when someone superior may be available? Would you do that if you were manning your own company and your house payment depended on having top performing people in place?