The recent collapse of solar-panel manufacturer Solyndra is an example of why politics and business don’t mix. The company’s loss of over $500 million in federal loans came as no surprise to auditors or analysts who had been over its financials within the past two years. The White House staff was blinded by lobbyists, and this failure comes as a slap in the face.

In theory, investing in renewable energy manufactured by an American company was getting at the root of two of our biggest problems: energy independence and job outsourcing. With China dominating the global market for solar panels, here was an American company that could both create jobs and turn a profit. And as conflict over foreign oil remains a matter of national security, the harnessing of solar energy on our own turf holds plenty of appeal. Good intentions could only carry the Obama Administration so far, however.

Government intervention in green energy falls under the controversial category of “industrial policy.” According to an August 2010 article in The Economist, industrial policy is the attempt by government to promote the growth of particular industrial sectors and companies. President Obama’s 2009 stimulus package set aside billions of dollars to accomplish this in the field of green energy. The $535 million loan to Solyndra was one example of this massive industrial policy effort. But like any investment into a new, fast-growing, and competitive field, there was a high degree of risk involved. It’s one thing for a venture capital firm to make no return on a big investment, but it’s quite another for the government to do the same with taxpayer money.

So what really went so wrong for Solyndra? In a nutshell, the company’s innovative solar panels had only one major competitive advantage: they didn’t require silicone as a raw material. The majority of solar-energy components in the global market require silicone, and in recent years, the price of high-grade silicone has been as high as $1,000 a pound. But in 2009, silicone prices dropped drastically to less than $100 a pound, and combining this change with cutthroat competition from heavily subsidized Chinese solar panel manufacturers was a death sentence for Solyndra. The company never broke even.

On a fundamental level, our government isn’t structurally equipped to make business gambles. Its bureaucratic nature of laborious decision-making and lethargic reaction time is no match for rapidly changing industrial markets. In the case of Solyndra, the Obama Administration was fully aware that for the company to be profitable, the price of silicone would have to remain high. But, according to an article in The New York Times, “industry experts outside the federal government, going back to 2008, were predicting silicon prices were headed for a steep fall.” It is no secret that industries built upon new technologies and ideas are bound to be the riskiest and most volatile.

Now, let me be clear: I don’t believe the government was wrong in wanting to help a U.S.-based solar energy company. In this case, they just went about it the wrong way. Instead of making a business loan, the Obama Administration could have provided subsidies around the cost of goods to encourage initial growth. It could have granted tax relief in the event of profits earned in Solyndra’s manufacture of solar solutions. It could have been a primary buyer of the product. By taking on the role of a supportive observer, the government could have greatly minimized its own risk. The private sector should remain the primary source of funding for innovative but uncertain business ventures.

It’s important to remember that the renewable energy industry is alive and growing. I believe that the free market system can do more for this field than any government initiative. Of course, globalized free-market capitalism as it stands today certainly can’t be called a friend of the environment. Resource exploitation in developing countries and a “race to the bottom” mentality gives a history of evidence to the contrary. Nevertheless, the market adapts to changes in demand and technology, and renewable energy is taking off in both respects. Governments have an important role to play, but they should be more preoccupied with regulating unsustainable industries than with making risky investments. In the case of Solyndra, the Obama Administration missed the blatant warning signs of trouble, and is now paying for this mishap in severe public criticism. “High risk, high reward” investments are for thrill-seekers in the private sector, not idealistic politicians.