More capable agents do not necessarily form a more capable collective. A multi-agent system may jointly possess sufficient information yet fail because evidence is poorly routed, unreliable reports enter public belief, correlated claims masquerade as independent support, shared state becomes stale or strategically distorted, or useful evidence is exposed through an ineffective action interface. We ask when additional resources should improve the reasoner and when they should instead change the institutional structure through which the collective forms and acts on public information. Drawing on functional distinctions from research on group decision making and distributed cognition, we construct controlled artificial ecologies around four loci of collective failure: access and routing, admission and dependence, state maintenance and incentives, and representation and action. Across these ecologies, we separately vary model capability and institutional structure, pairing positive interventions with matched reasoning baselines and mechanism-breaking controls. The experiments reveal a consistent boundary: institutions help when they repair failures in how a collective constructs usable public state, but lose their advantage when their signals are uninformative or uncheckable, when stronger intelligence can perform the same transformation directly, or when the resulting state cannot support reliable action. Our results recast the choice between intelligence and institutions as a diagnosis of where collective reasoning fails.

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