Take two teams, one with 6 people that produce a lot of value, and one with 50 people that produce... Let's say the same amount of value.
When the manager of the team with 6 people, in the same org, starts getting paid three times more than the manager of the team of 50, you'll stop seeing managers fight for headcount.
All of the economic incentives in the workplace lead to bloat, because people aren't paid for value added - they are paid market rate. The market rate for a manager of 50 people is higher than the market rate of a manager of 6 people.
It's like the gripe that engineers have in firms that don't have an engineering career track for vertical advancement. Good engineers are pushed into becoming managers, because that's the only way they can get rewarded. Likewise, managers are pushed into becoming managers of larger teams, because that's the only way they can get rewarded.
Say we considered a simplified case and focused on a single engineering team that is solely responsible for a single product. Just looking at the revenue generated by that product is insufficient since it excludes the contributions of sales, marketing, business development, etc. in driving that revenue. And practice most engineering teams are dependent on other engineering teams for providing shared services and infrastructure.
Its also insufficient to just consider current revenue of a product. We also need to consider the potential future gains from a product, which is unknown.
And quantifying value add gets even harder when we start looking at individual people. Considering individual contributor engineers, there are numerous ways that one can contribute, ranging from developing new features, diagnosing and fixing bugs, writing and updating documentation, mentoring, interviewing candidates, etc.
And there's a second-order casualty of that: the people who are assigned to report to such an engineer-become-manager.
This happened to me on my previous job. The most brilliant programmer I've ever worked with got promoted to a manager, for the dumb reason that the company's programmer salary bands didn't go high enough for what he was (way more than) worth. As a manager he had to have headcount reporting to him, and I got assigned to be one of that headcount. He had no interest in people-managing. I didn't begrudge him for that at all - but it was clear my own career would go nowhere reporting to someone with no interest in managing, so I left that job shortly after.
If this were the only reason, the invisible hand of the market would address this problem most of the time. Add too many administrators that add no value and you end up with a higher cost structure than your competitors and are not able to provide the same value.
Most of the time people demand more headcount because (1) they actually need more headcount to get the work done or (2) regulatory burdens force you to hire more headcount to deal with the regulations.
We're increasingly moving to a world where (2) happens more and more.
A good example on college campuses are things like campus police and kangaroo courts that deal with issues that should have been referred directly to city/state/federal law enforcement and the justice system.
To be quite honest, I see the same thing in my professional work. Everyone feels that their problems deserve more headcount. And heads make work, justifying more heads. Further, those heads want to get promoted, so they make-work to justify that too. And to compound the problem, people try to magnify their power and impact by becoming gatekeepers. More people to say no and more overhead and drag to every action.
It's unfortunately difficult to ask and to honestly answer why we do things and whether those things are worthwhile. It's even harder to take corrective action even if you admit that what you're doing is not worthwhile. I think it's one of the pillars of cost disease that is nibbling away the on-the-ground productivity of Western societies.