If everybody acts collectively in their own interest, we all win.

I mean this is only really true so long as everyone is allowed to vote, which is inevitably never the case. We always have certain subsects of the population which aren't really given access to democracy. It's very easy to, even in a "total democracy", still have a ton of xenophobia and imperialism, because obviously, people who aren't citizens can't vote. That's a very large top-down example, right, but this creation of subsects happens at every level. Famous more american examples are gerrymandering and the electoral college.