Just because it's complex doesn't mean we can't work towards trying to solve or improve this issue. We can either try to improve it for entrepreneurs and users, or allow it to continue to work in the best interest of sitting squatters.
Perhaps the system is already optimized for capitalism and entrepreneurship. There are plenty of domains available for next to nothing. Better ones that others have already come up with will cost more. This means that only better financed companies can afford them. Thus, better names go to better companies (in general). Bad companies fail and disappear and a less valuable domain was taken in the process and is now weeded out.
Of course, with all these 'noble' goals of helping users and entrepreneurs, drawing actual concrete lines anywhere is virtually impossible. When actually trying to tackle this problem, you realize it's at an equilibrium (albeit a low level one).
Yes, the bad faith intent is the major issue we are trying to deter. There are way too many domain squatters who buy domains solely with bad faith intent to profit from the goodwill of an entrepreneur looking to create a service for the public. This is the fundamental issue at hand.
You twist this idea by saying someone has registered it with the bad faith intent to profit from the goodwill of an entrepreneur looking to create a service. Goodwill doesn't exist until it is created. It's been show time and time again that you cannot buy something in bad faith before something exists. That's just not possible. How can you simply assume it's blocking something to be created for the public as well? You make way too many broad and wrong assumptions to try and reach a conclusion you simply want for your own selfish reasons disguised as a greater good.
I'm sure a .meow domain would suit your personal purposes just fine. A .com, however, would be better suited for commercial purposes if you intend to profit off of your fuzzy wuzzy photos.
This is my problem with your solution. It seems to think that there are only two groups registering domains: squatters and startups. Even if we expand "startups" to "companies", this is clearly bullshit.
When speaking of startups/companies registering domains I clearly stated that they would be reserved .coms, for commercial organizations. This was actually their original intended purpose until they were open for unrestricted registration:
The domain name com is a generic top-level domain (gTLD) in the Domain Name System of the Internet. Its name is derived from commercial,[1] indicating its original intended purpose for domains registered by commercial organizations. However eventually the distinction was lost when .com, .org and .net were opened for unrestricted registration.