The issue is clear. The final goal is the problem. Basic utilities should not be part of capitalism as shouldn't the army, the police and at least some schools. What I mean is that some event in life can make people very poor and some few survival level items should be provided at a non competitive cost. And I am not speaking about welfare. There should be no competition in water. You should always be able to go on the street and drink from a fountain. I have seen them disappear in some places as soon as the water has been privatized. This is not ok. Survival is not on the economic game.
Discussion
But all you're doing is moving the resource control to political means. You're not guaranteeing access at all. The notion you can avoid economic reality by hand waving it away is not going to work. If you want the cost of survival to fall, then your best bet is an open market.
Politics fails when the system is too big and the politics life is not getting affected by their choices. In a city or county they live there together with all others. It usually works
You are right that local politics works better than say national. But you can't have just local politics. You need the larger structure because its the only way to do war effectively when there's already other big players. And if your local municipality works so well it might attract enough people until its not that small anymore.
Economic reality doesn't go away.
I understand that. I moved for my convenience in a country with 1.5 millions people. The government stay little because every single citizen can reach the parliament in 1 hour by car. It looks like little dimensions are the only parameter that works. For war there are alliances.