So for example (clean sheet thinking) if we shut down all the LARS (and other 'ATC' outside controlled airspace) and started again, would it be possible to combine all the mode S returns into 'Area based' FIS? I.e. one defined person to speak to in any geographical area.
I think you're missing the point a bit. You can do that quite happily with Mode A/C, if your ATS provider is prepared to pay enough ATCOs to offer services in the 'areas'. At the moment, they're not, because we're not prepared to pay for it.
What Mode S as delivered in the US enables is a cockpit display of traffic information. Radar derived positions are displayed directly to the pilot on their multi-function display. That takes the controller out of the loop completely, and therefore takes away most of the marginal cost.
Humans are good at using their brains to manage complex situations -- yes, even ATCOs can do that
. They're less good at providing a full and accurate picture simply by giving a verbal description of what they see on a screen, and at turning a verbal description into a mental picture -- the communication of traffic position is much weaker by having two humans in the loop.
The way forward has to be to let ATC get on with what it's good at, managing traffic, and let avionics satisfy the conflict alerting function.