There's an interesting passage in the Michael Dibdin detective novel, Medusa, where the protagonist, a somewhat disillusioned Italian policeman, Aurelio Zen, is being lectured to by a friend, Gilberto, on the genius of Il Cavaliere, who, Gilberto claims, has realised the importance of presenting the appearance of importance, rather than of competence, to winning elections. Zen interjects, after the friend uses as an example Berlusconi's ubiquity in the Italian media, pointing out that, after all, Berlusconi does own most of the Italian media, making it rather easy for him to present himself in a favourable light all over it. Gilberto replies:
So did the Christian Democrats and the Socialists and Communists back in the old days. That's not the point.
It is the point though: a monopoly is, definitionally, rather more monolithic than an oligopoly, and dominance is markedly more difficult to achieve without being monolithic. Oligopolists compete against each other, for example. Perhaps given the remarkable stability of one particular party, if not necessarily the dramatis personae made up of its leading members, in government in postwar Italy, we might think that the characterisation of pre-Tangentopoli Italian politics as oligopoly is a little misleading, but that's somewhat beside the point. No-one would dispute, for example, that the British media, for all its undoubted faults, including some rather shameless biases and blindspots, was, holistically, freer than the Italian media under Berlusconi.
A while ago, before a series of tabloid-orchestrated moral panics buried it, when the loans-for-peerages scandal was running full pelt, various Labour party figures floated the idea of increasing state funding for political parties. This got a fairly frosty reception, understandably: it looked like a rather shameless attempt to pilfer the public purse to pay off debts mortgaged against blatant and now impossible abuse of privilege, and indeed probably was. That doesn't mean, though, that increased state funding for political parties would necessarily be a bad idea.
Think of it like this: political parties, in some form or other, are probably a necessary requirement of a functioning democracy, at least in the world as we live in it now. They set agendas, formulate policy, discipline members, and, by solving a series of collective action problems, provide a context in which debate can occur. Insofar as we have an interest in living in a functioning democracy, then, we have an interest in having political parties. That, of itself, of course, doesn't mandate state funding, since that interest could be satisfied by other means, most obviously private donations.
The problem with private donations, though, is at least twofold, and in a self-reinforcing way. Private funds are not distributed equally, and the prospect of them being so is thoroughly utopian. This means that, not necessarily even in a deliberate or even culpable way, parties are likely to align themselves towards those individuals or institutions with the capacity to give larger donations. This is a general problem: I suspect that the reason that lots of Oxbridge colleges spend lots of money on rowing, compared to other sports, is that rowers, traditionally, gave comparatively large sums of money to the college after graduating, which meant that there was a larger pot of money to use to spend on rowing, leading to the recruitment of more rowers, who were then more inclined to give money to the college, and so on.
Given the significant collective action problems that parties solve, and so the substantial barriers to entry against any new parties, having parties aligned to the interests of those with the capacity to give large donations is not good: such parties will be unrepresentative, and because of barriers to entry, it will be difficult for new parties to emerge. Berlusconi, after all, needed control of much of the Italian television network and print media, as well as substanial connections with various parts of the old regime, to carve out a niche for Forza Italia even in the total chaos that resulted from Mani Pulite. That kind of vaulting of the fences is difficult, and rare because of it.
The second problem is relatively new: the widely noted disengagement from party politics, which is no doubt partly, although far from exclusively, driven by the perception that the main political parties are distanced from the concerns of the man on the street, or the Clapham omnibus. That means that most people are less likely to give money to political parties, unless, of course, they can give enough to get direct leverage. Those who can do that, though, are hardly the man on the Clapham omnibus: they are inevitably much wealthier, even given Clapham's recent gentrification, and so have rather different interests, interests their donations will likely support against those of more typical citizens.
Those two problems suggest that private funding is unlikely to be sufficient to ensure that political parties continue to exist without falling into the hands of unrepresentative individuals and interest groups, thus tainting the political process. The difficulty with state funding though, is that it is typically also anti-democratic: it is assessed on the basis of votes at the last election, or seats in the legislature, and so tends to institutionalise whatever political configuration exists at the time it is introduced, thus further distancing parties from the electorate. What needs to be done is somehow democratize without privatizing party funding.
So, this is my suggestion, first made more than a fortnight ago here. The state, either in the form of a tax rebate or a direct benefit, gives all adults some small sum of money - it would only need to be a couple of pounds a year to match current levels of party political funding in Britain, I think - which would have to be donated to a political party, whilst imposing some upper limit on any other donation, except in the first couple of years of the party's life. The upper limit could be monitored through the party's accounts, rather than those of private individuals, and so would not involve any invasion of privacy, while the costs of the payment itself would be, in the grand scheme of things, miniscule, and could hardly be viewed as particularly troubling, since it could be given to any political party, thus giving control over it to the citizenry at large. I suppose that, for fairly obvious reasons for anyone on the left in Britain, it would probably be a good idea if you could also agree to sign your contribution over to some organisation.
Doing so, I think, would democratize without privatizing party funding. Most importantly, it would break the monopoly of the wealthy on it. Indeed, it would go further, as long as the defining of political parties was done carefully enough, than the oligpopoly of publicity that existed in Italy pre-Tangentopoli: it would presumably create something approaching perfect competition for political funding. Even right-libertarians, for all their 'money is speech' and 'of course there should be a market in political influence' schtick, can hardly object to that.