1. Government is less efficient than a privately owned, profit-seeking company--at least in most cases. If a business is inefficient, an efficient competitor will wipe them out. The same cause and effect doesn't exist for governments, except in the most extreme cases (revolution).
2. Markets that state and local governments dominate are large. Do you really think Waste Management would hesitate to take new markets that were previously controlled via government contract? Or that private prisons wouldn't purchase and run ones that were previously state-controlled? Or that power and water companies wouldn't realize the incredible opportunity to expand into new areas that were previously monopolized through government interference?
Your first point is true in idealized situations. There are many circumstances which contribute to the benefit of incumbents. Regulatory capture, first-mover advantage, cartels, price collusion, asymmetric information are just a few tools inefficient incumbents use against new efficient competitors.
Your example of waste, power, and water are a few cases where people, I think, support the government granted monopoly status. These industries have huge fixed costs and generate large externalities. Reliable waste management is a communal concern with clear risks to public health. I'd rather not have the trash company decide my neighborhood is too far to service weekly and switches to monthly pickup.
Government exists as a function of the people to balance externalities. Does it go to far sometimes? Sure. But when people are actively engaged though government can be a force for good.
2. Markets that state and local governments dominate are large. Do you really think Waste Management would hesitate to take new markets that were previously controlled via government contract? Or that private prisons wouldn't purchase and run ones that were previously state-controlled? Or that power and water companies wouldn't realize the incredible opportunity to expand into new areas that were previously monopolized through government interference?