*"Each [small-state] was allowed to self-govern as its own mostly-sovereign <s>nation</s> state, provided that they paid taxes and gave the central government control over their military forces in times of war":*

<sup>The words "nation" and "state" are not synonyms. One nation can very well live in more than one state; for example in modern time the Federal Republic of Germany and the German Democratic Republic. And of course the people of a state can belong to multiple nations, as for a notorious example the people of the Austrian Empire and the Kingdom of Hungary up to the end of WW1.</sup>

This is exactly how the Roman power worked for centuries in the days of the expanding republic. In Roman history, this very-lighweight style of governance of a large-ish empire ended with the [Social War](https://en.wikipedia.org/wiki/Social_War_(91–87_BC)) of 91 to 87 BCE.

* It was a civil war. It is called the Social War because in Latin it is called *Bellum Sociale*, which means "war with the associates".

* The Romans won, but it took them four years and it could have gone the other way.

* As a consequence, after the Social War the Romans changed their style of governance of the empire. Each small state was still allowed to govern itself, but --
  - The central power retained control of the armed forces at all times, not only in time of war.
  - The concept of Roman citizenship was greatly expanded, so that some / most / all of the men in the small states were *both* citizens of their small state *and* Roman citizens, with Roman citizenship trumping small state citizenship when it mattered. (Some / most / all depending on the specific status of the small state, the location of the small state, and the time period we are speaking of.)

On the other hand, the *Kleinstaaterei* in the question refers to the structure of the [Holy Roman Empire of the German Nation](https://en.wikipedia.org/wiki/Holy_Roman_Empire), a political structure which endured for either eight hundred or one thousand years, depending on the point of view of who is counting.

* Note that the HRE is not the same thing as the real Roman Empire. For half a millennium there were *two* political structures in Europe which called themselves "Roman Empire"; one was the real Roman Empire, and was a real state; the other was the bizarre German construction, and it was not a state.

  <sup>That's why the "Holy" part in the name of the Holy Roman Empire is never left out, and why we generally call the postclassical Roman Empire the "Greek" or "Byzantine" Empire. Less confusion this way.</sup>

* This is worth repeating. The HRE was not a state; if was a very loose confederation of many small or medium-sized states. Even the present day European Union is very much more of a state than the HRE: at least the EU does collect a small amount of tax from its member states, does forbid commercial barriers between the member states, and does insist on harmonizing the laws of the member states.

* The states which made up the HRE paid no tax to the emperor. In fact, most emperors had very little power. (How much power the emperor had depended largely on how rich he was and how skilled he was at politicking.)

* The states which made up the HRE were not compelled to place their armies under the command of the emperor, unless that course of action was agreed by the Diet (*Reichstag* in German, translated into English as Diet when speaking of the HRE and Parliament when speaking of the German Empire or the post-WW1 German Republic), which hardly ever happened.

* As a consequence, the HRE never ever waged war upon anybody as a coherent whole.

* Eventually, the well-functioning part of the HRE split off and became the Austrian Empire. The remainder remained just a collection of small states, which were eventually assembled by Prussia into the short-lived and ill-fated German Empire.