Aretae insists that all government is coalitional.
Maybe so, but that doesn't mean it's a good thing to widen the coalition further, and spread power about randomly.
The point of formalism is that power should be aligned with some form of responsibility, so that the powerful not benefit from destructive behaviour, and that attempting to obtain more power should be illegitimate, so that energies not be directed to destructive competition for power.
Formalists tend to believe that stable, effective and responsible government would follow a largely libertarian policy, choosing to limit government action to maintaining order and protecting private property, and taking its own loot in the form of predictably and efficiently levied taxation rather than by making arbitrary demands of random subjects. Such a policy would maximise the long-term revenue stream from the state.
Given a policy which sets limits on government, it becomes reasonably straightforward to deal with those centres of power which are not sovereign but which cannot be eliminated. They get subsidies, but not power over policy. Given that the sovereign chooses, for reasons of efficiency, to take taxes and buy food with them rather than to take food directly from whereever he fancies, there is no problem in giving pensions or subsidies to those whose support is needed.
The key formalist idea is that if those with informal power go beyond what they are entitled to but seek to influence general government policy, then they are doing something anti-social and immoral. All those who have an interest in the continuation of stable, effective and responsible government will see such an attempt as a threat. Fnargl does not have a ring, and I do not much fancy engineering weapon locks implementing a bitcoin-like voting protocol, so a combination of popular will and, in due course, force of tradition is all we have to fill the gap. In as much as there is a general interest in anything, there is a general interest in good government, and I do not think it is all that far-fetched to to see sovereign authority as something that people will reflexively stand to defend, were it not that that they have been taught for 250 years to do the opposite.
What's striking is that our current political morality holds the opposite view: that attempting to influence policy is everyone's right, but to receive direct payoffs is unjust. The powerful are therefore rewarded indirectly via policies with enormously distorting effects on the economy or on the administration of government, whose general costs greatly outweigh the gains obtained by the beneficiaries. Further, it is easier for them to seek to protect and increase their power, than to seek reward for giving it up, even if the general interest would benefit from the latter.
I could do with an example to illustrate this — if a person has necessary power, such as a military officer, then he should keep his power and be rewarded for it. If alternatively his arm of the military is no longer needed, but he still has power because he could potentially use the arm against the sovereign, then it is preferable to pay him extra to cooperate in disbanding the arm, rather than to maintain it just to keep him loyal. The same logic might apply in the organisation of key industries, or sections of the bureaucracy.
It would not necessarily be easy to resolve these things perfectly, but it would be made easier by recognising that concentrating power over general policy — sovereignty — is a good thing, as far as it is possible, and that the sovereign who has control over policy has the right to use it in whichever way he sees fit: to hand out cash presents as much as to award monopolies.
The exercise of democracy makes things very much worse, by adding to the number of those with necessary power anybody who can sway a bloc of voters, and enabling them to make demands for more inefficient indirect sharing of the loot.