In Germany, all exams are like this. Homework assignments are either just a prerequisite for taking exam but the grade is solely from the exam, or you may get some small point bonus for assignments/projects.
> But any teacher doing this will end up with no students signing up for their class.
The main courses are mandatory in order to obtain the degree. You can't "not sign up" for linear algebra if it's in your curriculum. Fail 3 times and you're exmatriculated.
This is because universities are paid from tax money in Germany and most of Europe.
The US will continue down on the path you describe because it's in the interest of colleges to keep well-paying students around. It's a service. You buy a degree, you are a customer.