I like the application of Dunbar's number, though I am torn on (2). The largest countries currently have over 1 billion citizens, that's still 10 million representatives. That's as much as some countries.

One solution is to say that no country should be so large anyway. And I'd like that, creating such huge power structures (hierarchical or not) is dangerous. But realistically, sometimes they are needed for defense. A lot of power structures are shaped by the necessity of organized defense (and can then be used for organized attack).