Is there any example in recent history, where a failed state managed to turn around and improve/start functioning properly? And if yes, how did they do it?
If the US decriminalised cocaine and other illegal drugs you would immediately put the cartels in a stranglehold financially. Upon this, you can start going after their "legitimate" interests in legal businesses like resorts and manufacturing. Just like the US prohibition emboldened the Mob, drug prohibition emboldens the cartels. The Mob used to literally have shootouts with police in the street.
What work do you think these people would start doing to fill in the financial gap? I’d suspect worse crime if no alternatives exist.