[Tloewald]

The Federation has the problem of being completely undefined; it has a president but no elections, politics, news? Does it have money or not? If not how does that work? We haven't really seen how normal people live inside the Federation.

The Culture is a benevolent Matrix where machines make decisions taking the desires and opinions of humans into account to whatever extent they choose to. The amorphous nature of the society is actually part of its explicit nature (whether a ship or population is part of The Culture is kind of up for debate and reassessment at any given time)

The difference between the Federation and the Culture is that Banks actually considered the societal impacts of matter compilers, godlike AI, etc. and tried to describe the results as he imagined them. THe Federation is "kind of like the modern US" with a bunch of tech that would make the modern US make no sense at all.