I think it makes political sense for them to do this. The "small government" political platform obviously appeals to large corporations and ideological libertar

I think it makes political sense for them to do this. The "small government" political platform obviously appeals to large corporations and ideological libertarians, but these groups don't get you a majority in the election. So how do you get average people who don't directly stand to gain from these policies to vote for you? You convince them that governments are intrinsically ineffective, that the private sector will systematically perform better. This is presented almost as a law of nature, if you disagree you simply don't understand economics. The existence of a clear and prominent counterexample (a government-run competitor outperforming privately owned businesses) is pure poison to this story, so they cannot allow it to exist. They -- knowingly, deliberately -- choose to hurt the people they represent and the economy of their state to save their political platform.