Here on the other side of the FAANG spectrum working with and for other independent contractors and various small (5-20ish devs) consultancies, I'd say that hiring based on who you know and you your peers recomend is far and away the primary way work is done.
The good news is, it's a very open network. We have a highly active Meetup scene, pretty regular public hackathons, annual small software conferences and un-conferences, and coworking spaces are (well were) packed.
For the most part this has worked, people new to the community are able to find jobs and the people hiring them know what hey are getting. But also like you say, this doesn't really scale to larger operations.
The good news is, it's a very open network. We have a highly active Meetup scene, pretty regular public hackathons, annual small software conferences and un-conferences, and coworking spaces are (well were) packed.
For the most part this has worked, people new to the community are able to find jobs and the people hiring them know what hey are getting. But also like you say, this doesn't really scale to larger operations.