Because the Arcane University is in Cyrodiil. Nothing works well in Cyrodiil.
Best explanation right here.
But seriously, it's raw fantasy! If it were taken further, it would go from fantasy into science-fiction.
However, I'd like to think that it's the Empire's belief in divine agents as being a universal absolute, which leads them to believe that innovation would be a challenge to their faith and a threat.
Just to prove my point, look at all of the persecuted magic-crafters. Look at the Dwemer. Look at the Necromancers. Look at the Conjurers. All of them. They are all people who in some way wrong the law of the land because they are devling in subjects considered to be forbidden. Why are they forbidden? Because of the fear and superstition and beliefs of the people.
Heck, we even have had the same thing happen in real history. Look at Galileo (probably spelled it wrong) and the Roman Catholic Church. Because he stated that Earth was not the center of the universe, the Catholic Church took that to be a threat to their faith and an act of questioning God. This was....da da daaaa....Wouldn't you have guessed it?....forbidden.
That's why I think that, in terms of looking at it from the game's perspective, is why you don't see such innovation.
NOTE: Just a note, my reference of the conflict between Galileo and the Roman Catholic Church was not a bash at religion, so please don't read it as such. Thank you.