The way individuals and nations cope with the trauma of failure often helps predict how soon they will begin dealing with the problems of success. Asia is just starting to move through the stages--of denial, blame, acceptance, and, we hope, remedy--that follow an unforeseen catastrophic event. Surprising financial shocks have shaken people's confidence to the core. The meaning of "Asian values" for growth and stability is now suspect. The future, which once seemed so secure, now appears uncertain. The faster Indonesia, Japan, Korea, Malaysia, and Thailand move beyond the blame game and build on their failures, the sooner they will return to growth and prosperity. Failure can be good. Failure can be redeeming.

For guidance on how to deal with failure, Asia needs to look no further than the U.S. in the 1970s and 1980s. America took years to overcome its denial and to acknowledge that its cars, consumer electronics, and other goods were shoddy and that its manufacturing methods were out-of-date and uncompetitive. Japan wagged its finger at Washington's huge budget deficit and at the country's enormous savings and loan debacle and told America to get its financial house in order. Singapore lectured the U.S. about its crime rate and welfare problems.

It is no secret that America simply hated the scolding. It tore at the country's pride to see Japan proclaiming itself No.1 and to hear Japanese officials boast that the U.S. was finished as a world power. Decades of postwar success had not prepared America to face failure. With denial came--at the extreme fringes--even a touch of racism aimed at Asians. But the content of Asia's criticism was, in the end, accepted fully. Corporate America reacted by becoming much more efficient and competitive.

The cost to the nation was high: a painful period of downsizing and restructuring in which millions of workers lost their jobs, communities were shattered, and families broken. The government acted, too: It set up the Resolution Trust Corp. to solve the savings and loan crisis, balanced the budget, reformed welfare, and, at the local level, reduced crime dramatically. Each solution brought pain or loss to some segment of American society. Yet the current U.S. growth rate of nearly 4% a year--generating 250,000 jobs a month with little inflation--is a direct result of that pain and the changes that followed.

It is Asia's turn for failure, but it hasn't yet learned much from the experience. Japan has been in denial for seven years, dawdling over its banking problems to the point where a crisis now threatens the health of the global economy. Indonesia, Malaysia, and Thailand have equivocated since July, blaming Western speculators and the West in general for their troubles (conveniently forgetting the immense prosperity they derive from global capitalism). Korea alone appears to be moving swiftly, perhaps because its predicament is even more dire than its neighbors'.

Asians have confused corruption and cronyism with capitalism and "Asian values" for too long. No social benefit derives from authoritarian politicians giving lush contracts to business friends who kick back campaign contributions. There is nothing virtuous about a high savings rate when compliant banks channel the money into speculative property deals or projects of the ruler's favored sons and daughters. There is nothing capitalistic about salvaging banks, securities houses, or chaebol that would go under if markets instead of politics were allowed to work.

This is not the time for arrogance from either the U.S. or Asia. It is the moment for Asia to transform its autocratic, command-and-control societies into democratic, flexible, market-driven economies. The Thais say: "From evil comes good." So too can success come from failure.

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