* power is held by private individuals (lords) or organizations (noble families, the church, and I guess in modern times - corporations) that accrue it by amassing money and/or other forms of influence. These power bases form alliances that suit them, with the implicit goal of maintaining their power and withholding it from others*
Government is the best tool they've found to help them do this.
That they're doing this right now, as you're right to point out, only shows the forces and dynamics at play – that individuals and small groups always attempt to gain power for themselves. But the historic fact is that they were much more successful at achieving their goals before the rise of a central government. Feudalism did exist (almost universally), and for many more years than democracy has.
Government is the best tool they've found to help them do this.