In a space where people and the system that has been put in placed celebrates success over failure, it provides a negative association with the latter. It thus conditions the minds of the inhabitants to be risk adverse. This epidemic is possibly the crutch of the society that prevents them from being adventurous and brave enough to test new waters.
In the short run, it will seem to the rulers of the space that it is an effective mean to run it but not in the long haul.
However, in an environment that celebrates failure in a way of acknowledging the effort put in, it will enable the people to not be discouraged by the failures at their first attempt, second, third or so on. This will provide an environment that values success by the amount of effort put in rather than the end result which might not be what it is expected to be in the first attempt.
Imagine when a child is learning to walk and instead of being given encouragement by his parents for his attempts, he receives scoldings and beatings, what do you think will happen to the child?
Just because we see and think that we are dealing with adults or people who should already know what is required of them, does not mean that they are any different from that little kid learning to walk.