The short answer to your startup example is that the number of businesses that take a $100M investment plus 10-20 years to realize a profit should be much, much smaller than it is now. It should be near zero. The fact that we currently have venture capital being thrown at stuff like this willy-nilly is part of the problem. Businesses should become successful before they become big.
> So instead of the current system (people willing to invent new things and work overtime for years to bring value to millions of people for a chance of outsized returns — and sometimes earning them) you get a system where political class seizes all power, removes all checks and balances, redistributes wealth production to themselves, and unleashes violence to rule forever.
I have some thoughts in response to some of your other points, but I think the fundamental disagreement here is that what you describe as "the system you get" is what I call the system we have, except that the powerful class in question is a sort of hybrid political/economic oligarch class.
The other way I would think about this is that what you call "the government" I would call "the public". We need radical transparency in all government action so that any kind of shenanigans such as you describe cannot occur, and we need to reflexively insist on this transparency regardless of whether we suspect any shenanigans in a particular case.
> Not all businesses can be small. How can a small business construct an airplane?
This is the best counterargument, and indeed airplanes are the example I've come up with as well when I formulated this counterargument to myself. However, I wouldn't describe this as "requiring economies of scale". It's just a matter of some products inherently being more complex (e.g., an airplane is more complex than a wooden spoon).
I think we should view economies of scale very critically. People say that economies of scale are "necessary" to keep things "affordable" for consumers. But in practice large economies of scale tend towards monopolism that in fact makes consumers more vulnerable to gouging. Economies of scale primarily benefit the producers that have them, and only indirectly and uncertainly benefit anyone else.
That said, if the goal is wealth diffusion, companies can become bigger the more diffuse their ownership. So, say, a worker-owned aerospace company could grow larger than one controlled by a small group of shareholders.
Finally, people talk a lot about the theoretical benefits of "innovation", but in my view innovation is also something to view skeptically. Perhaps in a world where there were a lot of small startups building airplanes or better mousetraps and competing genuinely on quality and price, we could think about relaxing some of the strictures I've mentioned. But that's not the world we live in. Much of what passes for "innovation" today is simply gaming the system, hoodwinking customers, and dodging consequences for harmful actions. I believe that this is connected to the fact that so many "innovative" companies are the type you mentioned above, essentially a venture capital gamble on some kind of high-concept startup, with a desired outcome of many total flops and a few gigantic runaway "unicorn" jackpots. That isn't healthy innovation and we should not only not encourage it but should actively prevent it. We want steady, incremental, monitored innovation, not a boom and bust cycle based on who can make the best sales pitch to their favorite billionaire. It is okay to never have another Facebook, another OpenAI, etc.