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I don't get this argument. Isn't the same thing true for most of the private sector? In most cases, people get paid a salary, and the company's money isn't their money either, it belongs to the owner or shareholders. So corporate workers and government workers are the same in most cases, in the sense that their only incentive for working hard is to keep their jobs, and perhaps get a promotion.
It's true that there may be less incentive for the top-level folks, although in some ways they are incentivized by the fact that, if their particular bureaucracy screws up or fails in some way, there may be a public outcry for their resignation, or perhaps they'll get voted out of office depending on position.