Most large scale hierarchical organizations say they want bright innovative people, but what they really want are subordinates who will respect authority, work for years at low pay, and be loyal to higher ups. Management in all kinds of organization and at all levels has always been interested in internal motivators love of craft, commitment to doing a good job, identification with the success of the larger enterprise, and the rest. Managerial interest in such matters, however, has developed on a rather specialized basis. The problem with tests and grades is that they motivate students for the wrong reasons. But if students are alienated, the university is not.
Grades help keep students in line.
Of course you have to rely on students themselves to supply the vicious language and lack of humor, but if you stress them enough, they will. This is why the grade system has increased in importance in the past few decades. Grades automate the system. They allow it to be operated as a cheap machine. The grading system replaces caring teachers with the equivalent of a mechanical assembly line.