Editorial: Uncle Sam play venture capitalist? See Solyndra

Alas, it wasn't.

Solyndra continued to struggle, canceled a planned public stock offering and filed for bankruptcy this month — leaving the U.S. government as its biggest creditor and raising new questions about whether Uncle Sam should be playing venture capitalist.

Despite initial misgivings about the company's viability, an Energy Department program aimed at boosting "clean energy" projects had guaranteed a $535 million loan to Solyndra, which produced an innovative but expensive solar panel. Taxpayers are now on the hook for some or most of that money, depending on whether someone buys the assets.

Whether Solyndra is just an expensive embarrassment, or a full-fledged scandal, remains to be seen. Shortly after the bankruptcy filing, the FBI raided Solyndra's headquarters and the homes of its executives in connection with the loan. And today, a House oversight panel holds a hearing to probe how the company — whose board and investors included some major campaign donors to Democrats and Obama — got the money, and whether the administration properly vetted the application.

Even if Solyndra's collapse is nothing more than good intentions gone awry — a big if — it is a cautionary tale about why government should be extremely wary about betting tax dollars on specific companies. If there's one thing the marketplace virtually always does better than government, it's picking individual successes in an uncertain and highly competitive business. In fact, government involvement can unfairly tilt the playing field toward one company and away from competitors.

What the government can do is create an environment that makes it possible for the best companies to emerge and thrive. Government can fund basic research that is too expensive and too uncertain for struggling companies. It alone can set clear rules, provide a productive tax environment and fiercely defend American companies from unfair foreign competition. One reason for Solyndra's demise was a huge drop in solar panel prices that might have been caused by China's heavily subsidized solar panel manufacturers dumping below-cost panels on the world market.

You can bet you'll hear a lot more about Solyndra as the campaign season intensifies, and rightly so. This is a stain on Obama's stimulus program. At the same time, context is important. The Obama administration inherited the Solyndra application from the Bush Energy Department, and Solyndra is one of 42 projects in the Energy Department's $30 billion portfolio of clean energy loan guarantees. The department says none of those other projects is in trouble; we'll see.

Moving the nation away from its reliance on oil and coal would unquestionably have huge benefits for the environment and for national security. The most efficient way to attain that goal — raising the price of fossil fuels to reflect their real cost via a carbon tax or a cap-and-trade plan — isn't going anywhere in the current political environment. That leaves a variety of next-best options worth pursuing, but trying to pick winners among individual start-up companies ought to be at the bottom of the list.