Think of instances (lemmy.world, kbin.social, sh.itjust.works, etc.) like planets. Each planet contains cities (or subreddits communities). Most of these planets are federated meaning that if you were born on one planet (have a login) then you can travel and participate the galaxy of cities and planets. If a planet defederates, then you can no longer travel there if you were not from there.
If I understand correctly, local only shows your planet and you can participate fully.
All shows the entire galactic federation (though you may only get to sightsee other planets, but not talk to the locals without getting a visa (login credentials for that planet))
More effective would just be making the site easier to use for newcomers, particularly tackling the onboarding and community discoverability.
Some straightforward ways I can think of would be apps assigning users randomly to a good general instance (like lemm.ee, vlemmy.net, or lemmy.one) that isn't extremely overloaded when registering
and integrating lemmyverse.net's functionality into lemmy itself, cuz not being able to see a list of all communities and their true member count/activity in Lemmy itself is a huge blow to user experience.
I wouldn't go as far as automatically assigning users to (random) instances, as some people might really want to use the one they've selected for a number of reasons. OTOH, the registration page could offer alternatives ("instead of registering here how about one of these instances, that is currently looking for more users and will have lower loads/latency", etc.). The default could lead people to some other instance, but always with the option to stay where you are. Of course it would only suggest instances that are federated with the one you're trying to join (if the admins removed the others there was a reason for that...) or even having admins fill in a list of "preferred instances" that could have a higher priority in the suggestions list?