It's a mischaracterization to say that I believe that government is more virtuous than private industry (though different incentives do produce different behavior). I'm talking about checks and balances, which isn't based on the presumption that one of the opposed forces is more virtuous than the others. In fact just the opposite presumption holds sway, since the technique is more effective when all parties are held hostage to charges of misbehavior and thus everybody's worst impulses cancel out. As you end up pointing out down near the end of your post. Those two dots connect.

The idea of private and competitive product testing labs is interesting, and not without precedent, certainly, in UL and CSA and Consumer Reports etc. etc. But the idea's not without side effects, including the inevitability of a regulatory agency to watch the watchmen.

You yourself pointed out the problems with self-regulation, most notably collusion and bribe-taking, which strike at the heart of a hypothetical private regulatory industry which must be above reproach. Adam Smith famously observed that when two or more businessmen get together, you automatically get a conspiracy to raise prices and defraud the public. I can't emphasize enough that if you purpose to replace government regulation with private policing, trust is essential and won't be regained if it's lost. One big scandal and we'll write off the experiment.

In some businesses such as digital certificates and banking, trust is a tangible commodity that's been systematically developed and formalized. People whose businesses depend on trust find it much easier to build it and hang on to it with the help of a neutral third party. In digital certificates the result is a hierarchy of organizations, some public, some private; while in banking trust is maintained by triangulating between the industry, government, and consumers.

There's an alternate dissertation possible relating the engineering practices of standards and calibration, based on a chain of custody flowing ultimately from benchmarks maintained by the government, to product testing as a form of standards-compliance; and yet another showing the same thing in cartography, flowing from the USGS to your county assessor to your property lines to your home's deed. Which is to say that ultimately government regulation makes private property possible.

The common thread is that a system cannot logically be internally-regulated. The fox cannot guard the henhouse. Government serves an irreplaceable role as the party outside of business and thus the only legitimate regulator of business.

Just because I can make a strong case for some amount of government regulation of business, that doesn't mean I'm totally against the idea of private testing labs. Let a thousand flowers bloom. But I guarantee you that you won't completely shed regulation--it'll require a layer of regulation watching the watchmen to supply the trust to make it work. It's a law of the universe, Tom. TAANSTAFL applies to Libertarian pipedreams too.