Maybe the central problem is racing to put other people out of work period, regardless of who they are. Maybe putting people out of work is not a net benefit for society, it’s actually negative in the long run, and only truly a benefit for shareholders. They don’t need any more of those at the expense of the working class.
To offer the counterpoint:
Local and private communities, if they remain only for meta content, is fine. But if they are used for other content, because they don’t want other instances seeing or interacting with it, it can permit an instance to isolate itself and its content from the rest of the fediverse, while still being able to enjoy all the shared content from other instances. I.e. show me yours, but I won’t show you mine.
Then, if these local only communities are the only places where people on that instance are sharing certain content, it’s breaking the whole idea that it shouldn’t matter what instance you’re on. If instances can remain insular, it starts making more instances attractive based on their size. “If you want to enjoy this content, come join our instance.”
Then they need to ban the bigots. Why should only the people on that instance have access to the safe space? Why is someone from another instance instantly judged as making the safe space less safe? It’s basically saying “come join our instance”, which is, again, going to cause unintended consequences.