Governance in the Aftermath of NeoLiberalism: Aid, Elites and State Capacity in Central America

Abstract

There is an increasing consensus that development and poverty reduction depends on the existence of inclusive state institutions that make and enforce rules and implement development policies. There is also increasing evidence that this depends on the emergence of a development-oriented elite that supports such institutions. However, there is little agreement regarding how such an elite emerges, or how external interventions, such as aid, contribute to the strengthening of institutions through the impact on elites. This article argues that one of the reasons for the limited effect is that governance interventions implicitly or explicitly have been based on a narrow and simplistic view of elites and the state. The article draws up an analytical framework for understanding state capacity and governance, particularly focusing on relations between states and elites. It then discusses how a set of reforms induced by the international community to move Central America toward market-oriented economies have contributed to the current governance crisis in the Northern Triangle (El Salvador, Guatemala, and Honduras). The final part discusses the impact of the neoliberal reforms on four dimensions of state capacity in the Northern Triangle of Central America: extraction, coercion, service provision and regulation. While the neoliberal reforms did not have a uniform impact on governance, they entered into ongoing struggles between elites, and thus had different effects on processes of strengthening or weakening state capacity.

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