Institutions aren't inherently bad. What's bad is when they outgrow human scale and begin demanding that people serve them, rather than the reverse.
Discussion
Do youthink of any institutions that have managed not to fall into this throughout history?
guilds until they became licensing bodies, universities until they became degree mills, hospitals until they became medical monopolies, hackerspaces until they professionalize... basically, all institutions started out this way
Sure, but I can't think of any institution that remained this way. But it is maybe because those who planned their own ending or vanishing have been forgotten...
You mentioned the ethereum foundation in another post, so I was wondering if it would be able to maintain its goal or if it would at some point just opt for survival as long as possible.
Yeah... we're asking for examples of something whose core properties include staying small and being forgotten. That's a bit like asking for perfect crimes - if we knew about them, they weren't perfect :)
Volunteer fire departments maybe? Emerged from neighbors helping each other, many still exist without credentials or gatekeeping. Just people with a truck.
As for Ethereum Foundation - it's one of the few where I actually see the process happening. They're not just talking about "subtraction", they're doing it - shrinking teams, pushing responsibility outward, actively resisting the natural pull toward empire. Plenty of issues, sure, but the direction is promising.

Yes, it's all about scale — Illich strikes again
Speaking of which, I've been wanting to learn more about scale dependence wrt social networks and institutions. Do you have any recommended reading on the topic? Is it possible to restrain growth in a principled way while maintaining liberty? Ellul's point (echoed by others) is that the internal logic of modernity is immune to restraint, and so growth and acceleration are necessary consequences of mechanization. The Malthusians on the other hand would artificially limit growth through top-down control (which is its own kind of mechanism). But is there a third option, in which culture regulates growth — directing it toward human flourishing rather than cancerous colonization and consolidation?
Not sure it answers directly your question, but I am reading Graeber & Wnegrow's The Dawn of Everything: A New History of Humanity, and one point is that the human experience has been way richer than commonly taught, and we have already reached high levels of cooperations in very different ways. One way to get the "right" balance seems to have been to embrace seasonal changes in semi nomadic peoples, like getting the institution for big/huge gathering (winter) and destroying it every summer, with different mechanisms such as rotating the winter ruling tribe...
But modernity is very different especially in that we have less and less individual space to split and are mainly settled... Anyway these experiences can be sources of inspiration to resolve our current paradox: alternating rulers (not the same as voting for them), alternating the very structure of society...
The cyclical growth/contraction point is very interesting, I'll have to think about that
A very good question to which I have no answer. There is no stable solution. Institutions will always tend toward capture, convivial tools will always face cultural erosion, and the best we can do is build things that make the cycle slower and less catastrophic.
I look at it little similar to "evil". How we can restrain people from being evil? We can't... it's structurally impossible. Only way is culture, moral education, shared values passed down through generations. But these also fail over time. I really don't think there is an answer to that, and I don't know if we need one.
Another way to put it is that there's no static solution to problems in a dynamic system. Which means we have to accept our role as temporary agents within that dynamic system, pushing in the direction that seems best to us, knowing our efforts or vision aren't determinative. Still, there have been other epochs in history in which mechanism wasn't in the driver's seat, and I'm sure there will be ones in the future that are qualitatively different. Letters from Lake Cuomo by Romano Guardini gives me some hope for this.
It's about time I start readng him!