You're probably onto something. Being too big leads to problems. But also leads to power.

You can't fuck with the US/China, even if nukes were removed, because they are a massive force that will crush you beneath their heel. So there is mass power in unity. However you look at europe, and you see a lot of gains as well, where multiple smaller governments exist, and a unifying body was created to compete with the likes of the US without giving up their individuality. But also the US is distributed since states govern themselves with overarching federal oversight.

It is massively complex. At the end of the day we need not only a small anarchistic state, we also need reasons why some cult of personality won't be able to rally his million followers and start guns blazing taking over neighbors. Unfortunately I feel like democracy is the least bad system we got.