Internic operated as a government sanctioned monopoly and was regulated as such.
Regulated monopolies exist and have existed with government acceptance for some time.
You power company is one, you phone company used to be one, your gas is one, and your cable as far as I can tell is one. Your proposal to control domains with a government entity, though probably effective, is in essence how the original system was set up. This is why they are introducing new registrars, to allow for commercial domain name registration, but in a competitive market. Internic was hobbled in the price they could set, precisely because they were under charter of the government. The initial price they set was way low, but there service sucked and still does.