Saying 'Choice A didn't make everyone's life better so therefore choice B is the right choice' is an incorrect application of logic because the world is not at all that black and white. It's an argument that gets us nowhere. IMO, no system will work in all cases, since any implementation of any system relies on people and people are imperfect. Further IMO, all systems are doomed to fail eventually in all cases, since people introduce increasing fragility to systems over time. The best you can hope for is a system which works for most people for a while and leaves things in a better state than they were when you arrived.
There are some services to the public which can and should be open to competition between private companies. There are some where they should be provided uniformly to everyone and even in some cases for free, If we are to consider ourselves an enlightened, civilised society. I don't think anyone would mind if coroners (for example) were a contracted service. Whereas most people would probably be slightly worried if it was announced that the police were to be outsourced.
This getting far, far away from the original argument though. The original question to me is a simple one - 'should the same days work command the same days pay, regardless of whether you are in Doncaster or Knightsbridge? Or should the same days work pay enough to give you the same standard of living, whichever of those two places you live'. There is no provably correct answer to that question, there is only opinion/belief.
Jon