Pii: S0305-750x(00)00092-9

Ð The policy problems posed by a lack of state capacity in developing societies now attract the attention of a growing number of scholars. Both the government failure paradigm, with its ``top-down'' emphasis, and the social capital theory, with its stress on ``bottom-up'' approaches, provide analytical frameworks that can be used to comprehend the symptoms of state incapacity reported by the much broader literature on policy implementation. This paper seeks to determine the implications of the government failure and social capital models for policy implementation. More speci®cally, the paper considers the contractualist approach to public management reform in New Zealand as the epitome of a top-down solution to government failure. It will also evaluate this model from a social capital perspective and suggest ways in which a balanced approach to public sector reform can take into account elements of both paradigms. Ó 2001 Elsevier Science Ltd. All rights reserved.