The chapter examines what gets lost analytically when governments move from thinking empirically about complex interdependent systems to relying instead on decision-making models that assume an unchanging mode of human rationality and fixed economic laws. Having set out the neoclassical theory behind outsourcing, privatisation and agencification, the chapter investigates how these policies have played out in practice. It demonstrates that although more critical i.e. ‘second best world’ neoclassical economic theories help us understand the chronic contractual, regulatory and oversight problems that prevail at the microeconomic level, it is the lessons of Soviet enterprise planning that tell us more about the systemic failures of these policies. Soviet planning failures illuminate why these reforms induce bargaining games between firms and ‘firm-like’ state agencies that the state cannot win, and why government attempts to solve chronic policy failures with remedial regulations that conform to orthodoxy create an ever more rigid bureaucracy over time, and in the case of outsourcing, increasingly informal relations prone to corruption, exactly as they did in the USSR.