The European monarchies were private governments, and there were political parties and labor unions and a great deal of diversity, with many cities having different neighborhoods for each ethnic group. The monarchies were less warlike, taxed people much less, provided public services and had active civil societies. Not that we should return to monarchies but the point is that these things can, and have worked.
The problem with government is a bureaucracy. If you were to privatize everything, you would come close the the libertarian idea.