Let me give you this hypothetical example: a company can either make $10 a lolly selling type A or it can make $1 selling type B. The 'problem' is that type A is known by the company (but not the public) to be poisonous.

If someone finds out that their poisonous he has the option of buying from a different company. By way of contrast, if all lollies were manufactured by the "department of lollies" and the head of the department decided to sell the poison lollies to meet budget constraints, my only recourse is to not consume lollies.

Notice that the private company can engage in this kind of behavior only if they are sure the defect will never be found out, by contrast the government department has no reason not to produce products with glaring defects, after all it's not like people can switch to a competing product. Furthermore, the the salary of the department head likely isn't even affected by how many people buy the products produced, so he is perfectly happy to waste public resources producing defective products no one wants.