Altruism, There is no Substitute
As stated earlier, the market is an imperfect system for rewarding good behavior. The reward system can be improved over what we have now, but there are limits to what the government can do with law and regulation. Even in business, some goodness must come from within, sometimes counter to the pursuit of profit.
The bigger imperfection is government itself. Here the conflicts of interest are huge, and no amount of campaign finance legislation or constitutional reform can entirely fix this problem. If you are teacher, your job prospects are better when there is more ignorance. More ignorance means more calls for smaller class sizes and more special education instructors. If you are a police officer, high crime means more job security, more opportunities for advancement. If you are a welfare case worker, poverty is your source of income. This does not mean that all government workers are bad people. Far from it! That most government workers are good people is why government works at all. But you don't have to be very bad within to cause great harm within government. Look at the actions of the National Education Association, defending inefficient practices and opposing accountability. Or far worse, there have been instances of prison guards defending outrageously long sentences because it provides jobs for guards.
The existence of unfulfilled needs also provide benefits to providers in a market system, but the conflict of interest is balanced by competition. In business, failure to provide good service can lead to loss of customers. In government, it can lead to higher taxes – more money for civil servants and contractors. The democratic process provides some check on this conflict of interest, but it is not nearly as powerful as the market process.
The fact that government works at all is testament to the goodness of many of the people within it. Most people are motivated by more than personal profit. But without proper checks and balances, sometimes the scum rises to the surface. Greed and government are a dangerous mix.
Adam Smith complained that the biggest enemies of a free market economic system are businessmen. While the common good is best served with open competition, individual businesses can be better off yet if they get special treatment: a tariff here, a subsidy there, and perhaps some new licensing laws to keep out new competition.
But this benefit gets nullified if everyone gets subsidized. We cannot all be special! To subsidize everyone is to hurt everyone, and that is a good description of the colossal government we now have.
But here is the tricky part: even if all businesses and consumers were to benefit from a simple and fair set of laws, regulations and taxes, there will still be protests, because somebody has to be first to lose their benefits. Real free enterprise cannot be defended by selfish business interests. It must be defended by diligent idealists, else we sink into mercantilism.
Greed can be the enemy of freedom.
David Friedman has written several books on the application of economic reasoning to areas other than "markets." In his book, The Machinery of Freedom, he analyzes the incentives of those who govern and shows that when the players act in their self interest, government frequently fails to serve the common good.
For more in depth study on the economics of government, do a search on the "Public Choice" school of economics.