Google did everything right in terms of local execution to get all the required licensure and top talent, and then Sergey threw it away.
(As I heard it, the legend is mostly attributed to Sergey pushing for it, and every time I've heard Eric talk about it it felt there was some disdain there, so I would agree with you that Larry was probably convinced also, otherwise Sergey alone wouldn't have pulled it off.)
Bad things happen when the state controls everything.