The bolded sentence seems, to me, to contain an internal contradiction. (Or at least a rather serious tension.)
But anyway, it's not true even in D&D that there is a baseline nor that the GM establishes and interprets the setting. 4e D&D works with a different baseline. AD&D OA works with a different baseline. The concept of a different baseline was well-known in the early 80s, when the book "What is Dungeons & Dragons" was published.
I think you're conflating the setting with the GM.
I often run Ravenloft, which has a different baseline than "standard" D&D. But I also make my own changes to it, sometimes radical changes, which means that I'm establishing and interpreting the setting. Thus yes, the GM is establishing and interpreting the setting. And I'd do so even more radically if it were a homebrew setting--which I also do a lot.
Nor is it the case that in "nearly every single game" the GM has this function. Here are some RPGs that take a different approach: Burning Wheel, Apocalypse World, Dungeon World, Agon 2nd ed, Classic Traveller (published 1977).
Well, first off, pointing out five games out of the literally thousands of RPGs out there does, in fact, mean that the GM has this function in "nearly every single game."
And yes, even in PbtA games, GMs have this function. In my Monster of the Week game, I made the setting, inasmuch as one can make the real world into a setting, by deciding the location (a fictional county) and the types of monsters in the setting (almost entirely
not "traditional" monsters). My players had a lot of input because they wanted certain things to exist, and for nearly all of those things, I said "sure, sounds good." For a few of them, I said "things don't
quite work like that in my setting." For instance, I don't have fey, but I have creatures that some people
think are fey, because I assume that humans in this world are as capable of making up legends and fairy tales and misunderstanding reality as well as humans in the real world are. If the players ever assume there's going to be a Seelie Court, they'd be wrong, but that doesn't mean that the Expert who decided that his background included dealings with the fey was wrong.
And yes, I decide the story conflict and the stakes involved in
that, but the players decide the player conflict and the stakes involved there. These two things are not contradictory! I can have the threat of a monster
and the players can do their own thing at the same time.
But what this also means is that the players need to come up with reasons why their characters work together. As a PbtA game, it's easy because each playbook has the history section and we spent a session going through them and coming up with connections. We wouldn't just have someone like that dark elf who has no reason to go to the Isle of Dread or whatever, because the players need to work together as a group in order to have a group game--it's not a solo writing session, and treating your character as the lone wolf is rude to the other players.