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Our system is quite different. Any garage employing or run by a mechanic with state certification can qualify to do inspections, and most towns have several, to the point where people will often shop around for a garage where the inspector might be a bit less strict than the last one they visited. But the other side of that is that both the garage and the individual mechanic are personally liable if a car bearing a sticker they signed is found to be the cause of an accident due to the vehicle being unsafe, so fear of such liability tends to prevent mechanics from just handing out stickers at random.
When I lived in Boston I thought that the system - basically, the same as the one you described - worked pretty well once we found an honest garage as the first one we used was clearly finding "something" each inspection that, conveniently, they could fix for a few hundred dollars.
Once we found a straight-shooter garage, we had one (maybe two) issues in the next 6 or so years and none were very expensive.
No system is perfect, but I thought the competition amongst stations (and the liability risk you described) balanced the market / regulatory push-pull reasonably well - and was definitely better than the state-run one (long lines, surly officials) in NJ (in the '70s and '80s, so no offense intended if it is better in NJ today).