It's bureaucratic, inefficient, and is the reason why SpaceX exists in the first place. SpaceX needs strong competition. So far Blue Origin and United Launch Alliance haven't fit the bill.
You’re right, if not for the countless innovations and designs NASA made SpaceX wouldn’t exist, therefore it owes its profits back to the taxpayers that funded its success.
Due to power law of distribution of... everything, true meritocracy usually means a monopoly. This is still better than forced equality of outcomes, or government ownership.