Just a quick pointer to two interesting posts on innovation on Ed Felten’s Freedom to Tinker blog.
Nurturing Innovation
Nurturing Innovation II
Here’s a good bit:

Internet email was invented in 1971. Back then, could you have found even one single person in Washington who would point to this fledgling technology as one day being important to the average American? No way — anybody who said that would have been dismissed as a nut. Even two decades later, very few policymakers recognized the eventual importance of email.
Often, we seem to be drifting toward a rule in which new technologies are, by default, banned, unless some functionary can be convinced that they have merit. That’s a dangerous rule, not least because we may never know which potentially world-changing technology was snuffed out at birth.