I think it's more accurate to say that the free market currently does not think that Internet surveillance is a problem. Consumers in general have decided that for Internet services and Internet access devices, factors such as cheapness, ease of use, and trendiness are more important than privacy.

Governments are able to reach more definitive consensus than free markets - a market would be not easily be able to make everyone use an anonymizing proxy, for example, but a government could legislate that. Governments can also move costs around, such as by funding a national proxy service with tax money.

But on one level, free markets and democratic governments are both just methods that societies use to enforce their collective wills. There are limits to how much their decisions can differ. There's a reason Schneier calls a situation created by Internet companies a surveillance state.

What's the incentive for free market solutions to the problem? The free market is motivated by profit. The gov is ostensibly motivated to serve its citizens. There's a better chance of the latter being effective, IMO.

There's another aspect to that.. if you're tired of what a company is doing, you can opt out and stop using their services. If enough people do this, they'll change their behavior or simply be no more. We saw that in how Godaddy finally came around against SOPA.

When we talk about government, the only way to opt-out is to physically leave and then that can only take you so far.. because even then, you might fall under other countries' jurisdictions no matter where you live. :(

That's exactly where I got hung up as well. If there is a demand for anonymous access tech, I think that the free market will eventually fill that demand (barring interference from the state). I don't think it's wise to entrust the government with limiting its own powers in general. "Strong government will" rarely seems to mean "empowering people to be free and anonymous," at least in my experience.