I don't think open allocation works either once you get past Dunbar's Number. Instead of making politics go away, it makes it worse. All the political considerations that are out in the open when you're managing a formal org structure become hidden in the backroom deals of who wants to work with who else and how they want to go about doing it.
Here's another observation for you: there is a system where there is no org chart and nobody telling anybody else what to work on. That system is the startup ecosystem. And the end result of that system is what you term "VC-istan": some players become more powerful than others, and they freely choose who they want to associate with based on reputation, or how well their personalities mesh, or pattern-matching on previous successes, or who they went to college with.
The only "solution" I could come up with is that there is no solution. If you give people agency and freedom of association, you will eventually run into situations where their freedom to act impinges on someone else's freedom to act, and it is impossible to let both of them work on what they wish without forcing one or the other to make tradeoffs. Or, alternatively, they could both choose to work alone, in which case it is impossible to build anything larger than what one person can do by himself. Once you see that tradeoff, it's possible to make choices that stake out various parts of that space, eg. another thread currently on HN [1] describes how your options are management, niche development, or consulting as you get older.
[1] https://news.ycombinator.com/item?id=7373301