Because of these two reasons, Socialism will not seek mediocrity as an equilibrium point. It will seek the lowest common denominator. If you do "A" work, but only reap the rewards of "C" work, why would you do "A" work? BUT, if you do "C" work and only reap the rewards of "F" work, why would you do even "C" work?
The long term result is that eventually everyone will work only at the level of the worst worker.
This video explains the features and benefits of our Socialist Obamacare Laws: http://www.youtube.com/watch_popup?v=HcBaSP31Be8&vg=medium
Interesting thing with your analysis is that is exactly the outcome of the average Union member.
Everything they do is geared around the lowest common denominator. They fight tooth and nail for the chronic troublemaker and try to take out the high performer.
When the business dies as a result they pat themselves on the back for standing up to the man. Then expect the rest of us to support them for their own stupidity.
Nauseating!
If people are extremely fortunate, the soft form of socialism as practiced in, say, Sweden, will merely result in mediocrity because the country may be rich enough in resources to support mediocrity.
But if not, it will develop into a kleptocracy which cannot even support mediocrity. IOW, the type of society which you get in the Krapistans of the world.