In America's case (since I can't claim to know much about how democracies in other nations work), the short answer to why democracy fails: lobbyists and minority groups. Well, maybe "fail" is too strong a term; let's go with "inefficientiates," that is, a pseudo-verb form of "inefficient."
The origin of lobbyists is admirable, I'm sure, but in today's atmosphere, I'm very much not too confident that lobbying is all that "respectable" any longer. There's an urban-legend-like story of lobbying originating during President Ulysses S. Grant's terms in the 1870s. Because smoking was not allowed in the White House, President Grant would saunter over to the nearby Willard Hotel and smoke his cigars in the hotel lobby there. Eventually, it became known that President Grant frequented the lobby, so people wanting some Presidential influence would come to see him in the hotel lobby. Of course, the actual start of the term "lobbying" was in the U.K. in Parliament and the House of Commons, with "lobbying" occurring in the U.S. even before the Grant administration. But those stories aren't as fun as the Grant story, so I'm not going to share those.
Also of issue to me about democracy is its "majority rule" axiom. I mean, majority rule makes sense in small settings. For example, if a group of friends and I were trying to decide where to go eat, majority rule makes sense. It'll make most of us happy. But on a national scale? A lot of fucking people are going to be marginalized, and we're talking millions here. I mean, if you think about it ... ideally, all it takes is 50.01% of the population to approve something, and it would be law. What about the other 49.99%? Their voices are lost. (Of course, here enter lobbyists again....)
Of course, although it may not be a great system/process, democracy is the best we have--as far as appeasing the most people. We should just revert to authoritative dictatorships. I mean, if a lot of people are going to be unhappy, we might as well all be unhappy (except for the happy dictator).
EDIT: Of course, the very next morning after I post this, I find this cool article/blog(?) on the evils of the history of lobbying.
Unrelated, but I highly recommend Danish electronic musician Anders Trentemøller.
This is his visually-stunning video for "Miss You":
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