There is a version of this argument that says the sovereign choice means settling for less, and it is wrong. You can run a large, genuinely capable model on your own hardware. Plenty of organizations do. If someone tells you that keeping data inside your walls means accepting a poor answer, they are selling you something. What they are selling is the idea that you only get two choices: everything out, or everything in.
Your data types are not uniform. The rule you wrote is.
When one decision governs all the data in a workspace, it has to be set to the strictest thing that workspace holds. For example, the product manual, the published policy, the release notes, the training deck, the whole non-sensitive majority of your corpus: stored alongside sensitive material, all of it is grouped at the same highest sensitivity level.
That is not a security gain. Nothing is safer because the product manual was treated carefully. The cost is two things. The first is opportunity: the better model was safe to use on that material, and one decision put it out of reach. The second is spend: your own hardware has to carry work that never needed to be inside your walls at all.
The waste is invisible, which is why it survives. Nobody files a ticket saying the answer about the published policy could have been better. They just get a worse one, forever, and never learn what they missed.