Communication
As usual, communication is (probably) the crux of the issue.
Re. communications and the number of people involved. The cost is proportional to the square only if every worker has to separately communicate with every other. And, in some cases that must be done. In others, a broadcast makes it somewhat cheaper. But in general you're right...doubling the number of folks on a project more than doubles the communication costs.
And unfortunately you're right about the "but this way we only need one approval" syndrome...ouch!
I really like the idea of the strategic direction...the "vision thing" as Bush Sr. put it. I think that's important, regardless of any other techniques we use. That way everyone should be able to (okay, *might* be able to) see why things are aimed the way they are, and possibly make corrections when things aren't aimed where they should be. And we *must* depend on our subordinates, even to looking at them less as subordinates than as team players. I find that's a fine line to draw, but things work out best when that line is drawn/redrawn appropriately. Our developers aren't just coders, or just architects. They're problem solvers, yes?
BTW, Tech Republic just notified me of your reply from 8 April (it's now 20 April).