I agree that nepotism plays a role in our society. I'm glad you mentioned it Eco, b/c I was thinking that my post about meritocracy sounded a bit too idealistic. I was going to mention cronyism but thought that it might open a big can of worms I wasn't prepared to explain.
I don't know what level you have been exposed to it. If you are talking about crappy employees staying in their jobs b/c they've been at the company for years, I agree this can sometimes be a problem. If you are talking about more senior people giving contracts to their associates, well, there is that also, tho there are also some very good reasons for this practice. I tend to think of nepotism as either productive or non-productive. The latter actually does eventually come out in the wash, as we saw recently (unfortunately) during the recent financial crisis.
At higher levels, nepotism actually does serve a purpose. Sometimes, ironically, it can actually serve meritocracy. It seems counter-intuitive at first but not if you really understand how things get done. One of the duties of those in executive positions is to facilitate the 'talent' when they find it and make sure they aren't hindered from doing what they are good at.
I think you'd have to work in high-level government, academia or business to fully appreciate what I mean. Nepotism can be a problem, definitely, but it can also be a really powerful way of getting things done. Nepotism and meritocracy aren't completely orthogonal in all cases, I guess is what I'm saying. Hence the big push for transparent corporate governance policies.
Second thoughts can generally be amended with judicious action; injudicious actions can seldom be recovered with second thoughts.
--Cyteen by C.J.Cherryh