Our society is built on trust. Most of the time, we trust institutions and the government to do what they say they will. But when they break that trust – by not keeping their promises or acting unfairly – that’s when things start to fall apart. The system stops working for the people it’s supposed to serve.

As a result, we trust regulators to protect the things that matter in our society most. Whether it’s holding institutions to account, or ensuring our food, water and transport are safe, a regulator’s role is to ensure society’s safety net.  

But when something goes wrong, the finger usually points straight at the regulator. And while it’s tempting to blame regulators about why things have failed, new policy research from former Chairman of ASIC, James Shipton, suggests we’re asking the wrong question. 

The real issue isn’t just who’s doing the job, it’s how the whole system is built.

Shipton is working towards optimising regulation by improving regulatory design, strategy and governance. As a Fellow of The Ethics Centre, he has engaged with industry to develop a better understanding of regulators and the regulated. This work aims to crystalise the purpose of regulation and create a pathway where that purpose is most likely to be achieved.  

Shipton’s paper, The Regulatory State: Faults, Flaws and False Assumptions, takes the entire regulatory system in Australia into account. His core message is simple but urgent: our regulators are set up to fail by design. 

Right now, most regulators operate in a system that lacks clear direction, support, and accountability. Many don’t have a clearly defined purpose in law. That means the people enforcing the rules aren’t always sure what they’re meant to achieve.  

This confusion creates a dangerous “expectations gap” where the public thinks regulators are responsible for outcomes they were never actually empowered to deliver. When regulators fall short, they wear the blame, even when the system itself is broken. 

Shipton identifies twelve major flaws in our regulatory system and while they might sound technical, they have real-world consequences. He starts with the concept that our regulators are monopolies by design. Each regulator is the only body responsible for its area – there’s no competition, no pressure to innovate, and very little incentive to improve. In the private sector, companies that fail lose customers and reputations, and customers are free to go elsewhere. In regulation, there’s no alternative. 

The heart of Shipton’s argument is this: credibility is key. It’s not enough for a regulator to have legal authority, they need public trust. And that trust only comes when the system they work within is built for clarity, accountability, and ethical responsibility. 

For example, in aviation, everyone from pilots to engineers shares a common goal: safety. The whole sector becomes a partner in regulation. But in most industries, that kind of alignment doesn’t exist, often because the system hasn’t been designed to make it happen.

Shipton stresses that design matters. Regulators need clear goals, realistic expectations, regular performance reviews, and laws that actually match the industries they oversee. We don’t need another inquiry into regulatory failure. We need to ask why failure keeps happening in the first place. And the answer, Shipton says, is clear: the entire regulatory architecture in Australia needs redesigning from the ground up. 

This doesn’t mean tearing everything down. It means recognising that public trust is earned through structure. It means giving regulators the tools, support, and clarity they need to do their job well and making sure they’re accountable for how they use that power. 

If we want fairness, safety, and integrity in the things that matter most, we need a regulatory system we can trust. And as Shipton makes clear, trust starts with design. 

James Shipton is a Senior Fellow, Melbourne Law School, The University of Melbourne, Fellow, The Ethics Centre, and Visiting Senior Practitioner, Commercial Law Centre, the University of Oxford. 

With inflation tamed, interest rates falling and wages rising, the government of Anthony Albanese has worked itself into a position where it can now develop a range of longer-term economic initiatives.

With this in mind, the government will convene an Economic Roundtable next week to consider ideas about how to best to achieve sustainable prosperity. 

I suspect that the Roundtable will focus on a range of ‘big ticket’ ideas for innovation and reform in areas such as tax, energy, infrastructure, industrial relations and the like. If all goes well, equal attention will be given to areas of social policy that have a major impact on the economy – including in areas such as childcare, mental health, social welfare, etc. Although not falling under a narrow heading of ‘economic policy’, all of these areas have a significant impact on the productive capacity of the Australian economy. In other words, a strong economy depends as much on sound ‘social’ policies as it does on sound ‘economic’ policies. 

However, there is a deeper ethical dimension that we hope will also be taken into account. Over a period of four years, Deloitte Access Economics has been exploring the link between ethics and the economy. Most recently, its work has zeroed in on the connection between ethics and productivity. Their findings are as follows: 

The relationship between ethics and productivity is increasingly recognised in economic literature and international practice. 

There is capacity for trust and ethical behaviour to: 

• Boost worker wellbeing and mental health, which are directly linked to labour productivity. 
• Improve business performance, with higher ethical standards leading to stronger returns on investment. 
• Reduce red tape, by lowering the perceived need for regulation in high-trust environments. 
• Enable economic reform, by building public support for complex policy changes. 
• Accelerate the uptake of technology, such as artificial intelligence, where trust remains a key adoption barrier. 

This has remarkable implications for our nation’s prosperity (in both economic and social terms): 

• A 10% improvement in ethical behaviour yields a 2.7% wage increase and a 1% gain in mental health, worth over $23 billion across the economy.
• A standard deviation increase in business governance is associated with a 7% increase in return on assets. 
• Countries with higher social trust experience 15-19% fewer regulatory procedures to start a business. 
• Aligning Australia’s trust levels with global leaders could lift GDP by $45 billion, or $1,800 per person. 

There should be no mystery in this, and the effects are clear and simple. Much of it comes down to the possibility of reform (of any kind). Identifying areas of reform is relatively easy. The difficulty relies in their adoption. This is because all reform is subject to resistance from those who fear that they will be left worse off. In turn, strong resistance creates friction that either slows or prevents reform – inevitably leading to sub-optimal outcomes for society as a whole. The number of people who fear being left worse off is often greater than the number of people who will actually be adversely affected. Even when people recognise that they are likely to benefit from reform – they will still oppose it in the belief that the ‘people in charge’ cannot be trusted to ensure that the benefits and burdens are fairly distributed. In other words, it all boils down to questions of trust. And as economists have known since the dawn of their ‘dismal science’ – high trust=low cost and low trust=high cost. 

Yet, trust itself is a function of ethical alignment. Ethics, and the trust it engenders, reduces ‘friction’. Thus, trust is a catalyst and enabler of productive reform. To put it simply: 

Good ethics → improved trust → greater prosperity. 

There are some deep paradoxes in this outcome. The most challenging of these is that although ethics produces a demonstrable economic dividend, it only has maximum effect if people act for non-instrumental reasons. In other words, ‘you don’t get the dividend if you do it for the dividend.’ 

We have long believed that the whole of Australia would benefit if, as a society, we invested more in revitalising our ‘ethical infrastructure’ alongside the physical and technical infrastructure that typically receives all of the attention and funding.

The evidence is clear that good ethical infrastructure enhances the ‘dividend’ earned from these more typical investments – while bad ethical infrastructure only leads to sub-optimal outcomes.

I doubt that the link between ethics, trust and prosperity will capture any headlines when the Economic Roundtable is convened. But wouldn’t it be great if it could at least be noted as a vital enabler of any reform that hopes to succeed. 

“Mum, why can we buy toys, but others can’t?”

My son’s question seemed simple, but behind it lay deeper questions about scarcity and fairness. And like many parents, I found myself unprepared to explain a system even most adults struggle to fully understand. 

Growing up in a remote village in northern Vietnam, I experienced scarcity first-hand. Only one child per family could attend school while the rest worked. These were choices shaped by poverty and silence. Worse, no one asked why. And that’s what drew me to economics: to find not just answers, but better questions and solutions. 

What if we taught kids not just how economies work, but why they work that way? What if, from a young age, they learned that the economy isn’t just numbers, but a system shaped by values, power, and people? It could transform their worldview and their future.  

Australia is facing a quiet crisis in economic and financial literacy. More than 1 in 6 Australian 15-year-olds fail basic financial literacy. The issue is particularly stark among young women: only 15% meet standards, compared to 28% of boys. Meanwhile, enrolments in Year 12 economics have dropped by nearly 70% since the 1990s. The Reserve Bank of Australia warns that a lack of economic understanding not only limits personal well-being but also weakens national participation. The National Australia Bank has reported increasing financial vulnerability among youth with low literacy levels.  

But this isn’t just a gap in knowledge, it’s a growing divide in civic understanding. 

Why financial and economic literacy must be taught with ethics

Too often, financial and economic literacy are conflated. In truth, they are distinct yet deeply complementary. Financial literacy teaches individuals how to manage money. Economic literacy explains the systems shaping those decisions. One is practical, the other structural. 

What’s missing is ethics – understanding who the economy should serve. This requires critical thinking about values, justice, and responsibility. It involves teaching children that every economic decision is a moral one, and that their choices can help shape a fairer world.  

By teaching financial and economic literacy alongside ethics, we not only teach survival skills, but cultivate thoughtful participants in a fairer economy.

This approach encourages them to assess trade-offs, consider long-term impacts, and understand the values reflected in their choices. It sharpens understanding of the hidden costs of our financial choices: the underpaid worker behind a “cheap” shirt, the personal data exchanged for a “free” app, and so on. In learning to not just ask “Can I afford this?” but “What does this cost others?”, students can develop both agency and empathy. 

Three timeless economic lessons every child should learn  

1. Choices and scarcity aren’t just a constraint, they’re questions of justice

Economics begins with scarcity: we live in a world of limited resources, so choices must be made. But helping children make smart trade-offs is often where financial literacy stops. 

Ethical economics asks a harder question: Why are some people forced to make impossible choices while others never have to choose at all?

Our resources are not evenly distributed, and how they are distributed reveals the underlying values of our economic systems. Furthermore, the mechanics of limited choices reveal the moral concerns of our society, issues ethical economics serve to investigate. 

When we teach children only to manage scarcity, to see limited choice as inevitable, we risk normalising injustice. But when we teach them to understand and question it – Who sets the rules? Who is left out? Why? – we nurture civic responsibility and moral courage. 

2. Incentives and transactions: the ethics beneath every exchange

Children learn the logic of trade early: stickers for chores, screen time for good behaviour, lunchbox swaps at school. These are their first lessons in transactional incentives, one of economics’ most powerful tools. 

But incentives are not morally neutral. They reflect what we value and who we reward.  

When we teach economics as just transactions, kids learn to see the world only through profit and loss. Ethics, however, reminds us that not all trades are fair or impassioned, and not all incentives are neutral. Behind every transaction is a judgement. Behind every incentive is a set of assumptions. Without accounting for context, incentives risk rewarding privilege while penalising disadvantage. 

Teaching children to recognise this helps them move beyond “getting what you deserve” to asking: Who is allowed to participate?

This teaches not just how to respond to incentives, but how to question what they promote and whom they serve. 

3. Markets need morality

Markets are often framed as natural forces: efficient, self-correcting, and impartial. But they’re not. 

Scottish economist Adam Smith’s “invisible hand” theory describes how individual self-interest can lead to collective benefit. Yet Smith, also a moral philosopher, warned that markets only work when anchored in trust, justice and social responsibility. 

English economist and philosopher John Maynard Keynes also argued that when markets fail, as they do during crises like the Great Depression, governments have an ethical obligation to intervene. During COVID-19, children saw this play out in real time: their parents receiving stimulus payments, rent relief or panic buying. But did they understand why?  

Well, they should. That’s the real lesson: markets need rules, and rules need values. Who gets what, and why? These questions encourage children to investigate systemic motives and hold them accountable to their ethical obligations. Teaching students that both markets and governments are designed by people and reflect our collective choices helps them understand they can shape these systems too. 

Raising ethical citizens, not just economic agents 

Teaching economic literacy without ethics risks raising informed consumers but disengaged citizens. But when we teach children that every economic choice reflects a set of values, we equip them with something far more powerful than a calculator; we give them a moral compass. 

As Nobel Laureate Esther Duflo reminds us, ethical economic education is not about ideology. It is about humility, empathy and evidence. It is about empowering people to improve lives, not only their own, but others’. 

So yes, give a child a piggy bank, and they may save for life. But teach them how economies work, who they serve, and what they exclude, and they will reimagine those systems with care. That is what it means to raise not just capable earners, but ethical citizens. And that is what we owe the next generation.