I think one can assume that by the time of The Phantom Menace, the Republic has become a decadent institution, and that it had functioned better in the past. But I've thought that in Star Wars there isn't as much contempt for democracy as much as there is contempt for politics and institutions in general. Throughout the prequel trilogy, there's a sense that the Jedi Order/High Council is also a failing institution whose rules are constricting, irrational, and lacking in compassion. Qui-Gon breaks many of the Jedi's rules by taking on Anakin as a disciple, and in doing so he sets off a chain of events that ultimately leads to the dissolution of the Jedi Order. In the prequels, it's pretty clear that the audience is supposed to see the Jedi Order as a flawed institution that should be destroyed -- we're supposed to see, I think, the destruction of the Jedi Order as necessary, and as the part of the fulfillment of a prophecy (meaning, obedience to a higher truth than the authority of the Jedi). The Republic, like the Jedi Order, is an institution that seems to have become obsessed with the trappings of power, rather than with carrying out the civic function it is designed for. (Also, as an aside, it's interesting how the prequels ties in with Ep 8 because of some of these themes... In some ways, what happens to the Jedi Order in Ep. 8 brings closer the fulfillment of Qui-Gon's intuition that Anakin will bring balance to the force.)
I've also thought these ideas about institutions don't reflect a particularly well thought out political outlook on George Lucas' part, as much as they reflect fairly conventional themes about rugged individualism that one finds in a lot of Hollywood movies. That, I think, in turn is indicative of just how thoroughly American Hollywood is. Many of the most beloved characters in Star Wars are characters who act before they think, are scrappy and resourceful, and are driven by gut instinct rather than careful consideration. In other words, they embody virtues that Americans prize and applaud: such as practicality (and scorn for useless intellectualizing), earnestness, no sense of entitled, a lack of pretentiousness or refinement, no patience for formality, etc. And I think the disparagement of politics and institutions -- whether they're governments, or rogue non-state military organizations, or whatever else -- with all their byzantine rules and procedures, follow as a consequence of that view of the individual: institutions, or organizations, become mere obstacles, which prevent individuals from following something simpler, something more authentic, namely, their instincts and feelings, and their own private, personal convictions about right and wrong, and what they should do.