That sounds a lot like the Republic (Star Wars). And we know how that turned out.
it's a wonder the Federation didn't end up like the Republic.
Let's see, a powerful democratic institution for a thousand years
, then a few decades of various civil wars, followed by (in the EU) a return to democracy.
I don't know. I think there's something to be said for the argument that, just like the Galactic Empire was to the Order of the Sith, the Galactic Republic was nothing more than a mechanism to legitimize and perpetuate the Jedi Order's dominance over Galactic civilization. It was never a genuine democracy, because real power was monopolized by the Jedi.
In this view, the actual undemocratic nature of the state remains relatively unchanged, and the Clone Wars and the rise of the Empire was nothing more than the process by which one state church displaced the other by use of plutocratic puppets.