The limits of institutional convergence: why public sector outsourcing is less efficient than Soviet enterprise planning

This paper explores UK public sector outsourcing to offer a critique of the theory of liberal institutional convergence. The latter argues that NPM is a case of empiricist scientific rationalism but the neoclassical economics that justifies public sector outsourcing operates with a closed-system ontology of the economy that has more affinities with Stalinist central planning than to empirical political economic science, and this has real institutional consequences. The argument sets out the neoclassical logic behind outsourcing, the unanticipated risks in its conception and the deepening problems with its intensification as practice. It shows how, when we put the market rhetoric of NMP to one side, outsourcing necessitates the central planning of private actors, and the success of this venture hinges on the viability of the outsourcing contract as an effective junction of instruction and control. If there is institutional convergence in New Public Management it is with Soviet enterprise planning. It follows that it is not simply ‘second-best-world’ neoclassical theories that can shed light on outsourcing's chronic failures but also the critiques of Soviet central planning. The latter help explain why incomplete contracts in outsourcing are just the start of bargaining games that the state cannot win.