
No, it's a problem with the state. The state is not the society.
We are in the best time to implement true democracy.
No, we are not. No one knows what it even is.
Are the red and blue candidates your only choice?
That's a majoritarian consideration. Eliminating that for the U.S. is only one of many issues.
Is it so hard to implement a better way to field candidates based on merits/goods
Yes, it is extraordinarily hard. As a practical matter, any system based on electing representatives makes it impossible to ex ante anticipate the decision making that the representative will actually undertake in office. There is no guarantee that the elected agent will abide by the expectations that they have conveyed to the principal. Further, decision making in a system of collective action has profoundly different semantic considerations and rules from that of a contractual exchange.
(This topic has been well-studied under constitutional economics, voting theory, rational choice and political science. For starting points, see The Logic of Collective Action and The Calculus of Consent followed by Patterns of Democracy. For radical reappraisals, see Organization Theory (Kevin A. Carson) and Democracy: The God That Failed).
One interesting point in the book is that Taylorism suffers from the garbage-in-garbage-out problem. Large firms are islands of calculational chaos because they suffer from the economic calculation problem [1] pointed out by Mises and Hayek. Similar to centrally planned economies, large firms cannot intelligently allocate resources or make other managerial decisions because there are heavy distortions in incentives / price signals.
He further points out that economic distortions occur not because of socialism per se, since large capitalist firms also suffer the same problem, but rather long hierarchies. He explores other modular and co-operative organizational models in the book also.
[1] http://en.wikipedia.org/wiki/Economic_calculation_problem
This is another can of worms. Once the federal government concentrated its power and became more centralized, one of its first acts was subsidizing the railroads, passing the high distribution costs of large, centralized industrial firms on to taxpayers.
This effectively crowded out more decentralized methods of production that could have been more effective, using networks of small rails or canals to more cheaply distribute local goods, for example. The concentration of capital of centralized industries continued to increase under this regime, with the state being used as a blunt force instrument to distribute external costs of large industrial firms to the public.
This relationship between the state and industry continued to mutate into the corporatism we have today, with the corporate form now being massively privileged and protected by the state through subsidizing infrastructure (transportation, communications, etc.), limiting legal liability, tariffs, patents, copyrights, etc. The state acts as a blunt force instrument for concentrating capital in the hands of a few, on behalf of legal fictions called corporations.
This is the modern age, and in many ways it seems like there are more slaves today than there were before, despite the so-called efficiencies of centralized industry.
If you're interested, Kevin Carson puts forth a critical survey of orthodox views on economies of scale in Organization Theory: A Libertarian Perspective, refuting proponents of centralized industry such as Joseph Schumpeter, JK Galbraith, and Alfred Chandler. He provides a strong argument for decentralizing industry as a way to truly lower real distribution costs, by stripping away the many privileges afforded to corporate forms by the state, in preference of freed markets and bringing more wealth into local economies.