Why do some countries do better than others? How have some countries managed to sharply reduce poverty and sustain progress? And, why is Pakistan such an outlier, with middling, often hesitant human progress?Much of development policy thinking is about raising per capita incomes through technical solutions, such as increasing investment, mobilising resources and achieving efficiency in their allocation. Others point to the need for efficient institutions, even if few agree on how to get to that point. Above all, there is a strong belief in the power of markets. The role of the state in this gestalt is a minimal one, confined to providing basic infrastructure and market regulation. These elements constitute the core of mainstream economics.Yet this elegant edifice has been shaken to its foundations by the seismic shock of four contemporary events: (1) the world economic crisis that has demolished the proposition that markets are self-regulating; (2) the rise of the South, which has demonstrated the diversity of development policy and the essential need for a committed, energetic state; (3) the rising expectations of people everywhere, for dignity and jobs, as they get more educated and globally connected, and (4) the global environmental crisis that threatens the physical life support systems of the planet. Responding to these challenges requires new relationships between states and markets, and states and the people.There is much evidence to demonstrate that a narrow technical view of development rarely works. Macro-economic management in developing countries may well have to break out of the orthodox mould. For instance, the first imperative for Chinese monetary policy is growth, and then price stability. The fundamental task of development is to transform society: education and health are key elements in that process. So is leadership that can navigate the complexities of the contemporary world. Jump starting growth and sustaining progress over decades requires not only changed institutions but a changed society and this in turn influences the pace and pattern of future development.Part of ‘good’ policy making is to be upfront about the dynamics of the power structure that underlies the formulation and implementation of public policy. Development policy is not simply a matter of getting good advice from ‘experts’. The power play of political forces within the state structure, within a fragmented society like Pakistan and between international interests are often more important in shaping policy than considerations of long term development.Equally, markets in Pakistan and other countries cannot be imagined as free and neutral with respect to individuals and social groups. Markets are mediated by power and so are asymmetric with respect to the rich and the poor respectively. For example, in some areas the price that a small farmer gets for his output is lower compared to the big farmer. Even in the provisioning of public services such as quality healthcare and education the powerful get preference.The state has played a pivotal role in the success of the major economic powers such as China, Japan and the South East Asian ‘tigers’. The state nurtured firms that had a potential for innovation and exports, set up infrastructure and undertook in some cases the universal provisioning of basic services such as education, health and social protection. New evidence provided by the 2013 UNDP Human Development Report suggests that these forms of state intervention not only dampened inequalities during the growth process but also helped to generate and sustain high economic growth.How significant is the universal provisioning of social services in the success of these countries? Mainstream development policy makes a case that developing countries cannot afford such universal provisioning, that they have to adopt a targeted approach, and proceed on a gradual path. Historical evidence argues the contrary: Germany in the 18th century, Japan in the mid- 19th century, and Sweden and Norway in the mid-19th century undertook universal provisioning of basic services when the per capita income of each of these countries was lower than the per capita income of either Pakistan or India today. These are transformative actions that cannot and should not be postponed. They set the stage for a healthy and educated labour force that in itself kick-starts development and plays a key role in broad based development. Equally important, they help in maintaining social cohesion and win legitimacy for the state and ruling elites. Studies show that cohesive societies tend to grow faster than less cohesive societies.This approach contrasts with the advice given on social welfare policies as simply one of mitigating the adverse effects of economic growth on the deprived sections of society. Actually, social policies are at least as important as economic policies in accelerating and sustaining growth. Social justice and growth are not contradictory but complement each other.Development must now aim to achieve not just higher economic growth but one where equity, social justice and environmental conservation are built into the growth process; in short, the focus has to be on accelerating human development. Greater equity is a win-win proposition. As the institutional structure of the economy is opened up to the middle class and the poor, the resultant wider base of investment, innovation and productivity increases, in turn generating a higher long term growth.Pakistan is at a crossroads. Short-term economic management is insufficient, however prudent it may appear. We have to concentrate on the key transformative actions like ‘free, compulsory, and public education for all’ to open up and democratise society. If these actions were good enough for both advanced countries and emerging powers, surely they merit careful attention and support. Leadership as always will be of critical importance. Those who take on these proven transformative policies will be remembered in history. Pakistan deserves nothing less. Dr Khalid Malik is Director of the UNDP Human Development Report Office in New York. Dr Akmal Hussain is Distinguished Professor of Economics at the Forman Christian College University, Lahore