The public realm continues to rely on thousands of people who offer services voluntarily, and the very nature of health, or education, or policing demands that it be undertaken by people who do not have a purely instrumental view of their vocation. Perhaps it was appropriate to build Blenheim Palace for John Churchill, or to offer his distant descendant Winston a dukedom: but these measures were recognition of great achievement, not performance incentives designed to encourage the individuals concerned to try harder. If Marlborough and Churchill had needed such incentives, they would not have been the right people for the roles they fulfilled.
What may strike the reader about these arguments is the somewhat unnatural dichotomy implicit in the above discussion -- specifically 1. that we must delegate things to either the public or private realms, and 2. that we should not wholly rely on either the public or private realm to advance policy. Like all social concepts this dichotomy is a social construction, and a really interesting history of thought question would be to ask, how did this social construction evolve? To what extent was it influenced by economics?
Pragmatists such as Margaret Radin would argue that the goal of democratic policy is to draw a finely-tuned line between the public and private in a way that preserves our innermost sense of personhood. For example, we may permit prostitution as a way for females to further their economic position in society, but we could reduce the role that contract plays in its operation so as to sidestep issues of commodification (the state could severely regulate contracts, lessening the role of private enforcement).
More extreme solutions might take note of the historically contingent character of the public-private distinction, calling for an embedding of the two within each other. That is, they would recognize that within the history of capitalism these public-private distinctions take place as part of larger ideological forces which attempt conceptualize private relations as different from public ones. The goal was (and is) to delegate a set of relationships based on hierarchy and unequal exchange in the private sphere.
Of course, this is quite a bit of a digression from the FT piece. But it spurs an important point related to the article: the "department store Santa Claus" is not absurd because we need to hide the fact that he's intimately related to the market from the children. He is absurd because he fundamentally accepts capitalist social relations -- that's true whether we look at his relationship to the department store or his own factory in the North Pole.
In this way he is no different from the bastardized western Nanny state -- gift giving with a cruel historical twist re: labor relations.