I assure you, oral exams are completely scalable. But it does require most of a university's budget to go towards labs and faculty, and not administration and sports arenas and social services and vanity projects and three-star dorms.
But "in any functioning society" is not our society. Human civilization is marginally functional, wildly spotty in the distribution of comfort, with the majority of humanity receiving significantly less than others.
One way of scaling out interactive/oral assessment (and personalized instruction in general) is to hire a group of course assistants/tutors from the previous cohort.
I think it works differently at different schools and in different countries, but hourly (often undergraduate work-study) course assistants in the US can be very affordable since they typically still pay tuition and are paid at a lower rate than fully funded (usually graduate student) TAs.
As a student I really would not want to be taught by someone who was simply a couple of years ahead of me. I want my tutor to be a lot more experienced in both the subject and in tutoring.
