What theory of democracy claims that the government is run by political insiders?

Elite theory

Elite theory contends that a small number of elites -- leaders of corporations, wealthy investors, political think tanks and such -- have a larger influence on political processes than the majority of society members have through democratic processes.  Corporations and their lobbyists (business elites) influence governmental leaders (political elites) to enact or maintain policies friendly toward their corporate interests.  Ideological institutes and political action committees also exert influence that puts pressure on elected officials to implement policies consistent with the ideology, rather than acting fully as representatives of the constituencies that elected them.