This is a issue I have thought about for a long time after seeing the fact that religious people universally assume as an a priori principle that if they were in charge and in control, that everything would be peachy. The "Nirvana Fallacy." Yet we see that when in fact, they gain any power at all, they always manage to destroy good arrangements and understanding between people, and to make bad situations much worse than they would be without their meddling.
Yet we also see some great yeshivas which are great not just for themselves but for the entire surrounding communities like Ponovitch in Bnei Brak and the three great NY yeshivas, Mir Chaim Berlin and Torah Vedaat.
This is an obvious question but one that few people have ever raised in such a fashion. Rather what we see is people take a pro or con approach without considering that the facts on the ground seem to point in contrary directions even without any interpretation.
The answer to me seems simple-- based on Hobbes. That is the difference between government and civil society. That is government is a monopoly of force. That is the most terrible thing to grant to religious people under any circumstances. But civil society is voluntary arrangements between people and that is the place of Torah. קיימו וקבלו as it says in Megilat Esther. That they accepted the Torah afresh in the time of Morechai and Esther.
Thus we see in private institutions like yeshiva where everyone is there because they want to be there everything works fine. But when you introduce an element of coercion (כפייה דתית as they call it in Israel) then the whole pie is ruined. [Plus the problem with the fanatical religious that their word is meaningless. For some odd reason they do not seem to think lying or fraud towards secular Jews is a problem.]
Another issue is that the religious are exceptionally prone to schizoid tendencies which makes them susceptible to the illusion that whatever they are feeling or thinking at the time must be right and must apply to all people uniformly--since they believe they are in direct contact with the Divine. This leads to incredible levels of self delusions. The reasons the great yeshivas avoid this problem is obvious--they are Litvaks. That is they go with straight Torah as their guide.
And their intention is clear -to sit and learn Torah and to keep it. It is not to gain power. The last thing you want to do in grant coercive power to any faction that seeks it, no matter how nice they make themselves seem before they get power. You know they will control everyone for the interest of their own small faction.
Note 1. The importance of what kind of system people to live under you can see from Herodotus when the Persians were deciding whether to live under a democracy or an monarchy, and in the history of the war between Sparta and Athens when what kind of system in place largely determined outcomes.
Note 2. It should be obvious that people have the right to be free of fraud and force. Thus the existence of a civil society [where government does not enter into] does not give the right to people to commit fraud. Thus the fraud of the religious ought to be outlawed.
It, at least, comes under the category of dishonest representation of one's product.
Note 3. No one should be able to declare himself a expert in Law without authentic ordination which no longer exists since the middle of the Talmudic period. They do not get to call themselves experts and thus lord over other Jews by means of fiat and their own decrees.