Flagging is exactly what redistributes the STEEM. When a post gets downvoted, the STEEM gets "released" back into the pool, shared among other posts.
It'd be naive to say that being flagged is a positive thing; of course it's a bummer to the person being flagged. But if we accept that the upvotes allocate STEEM, we must accept that the downvotes do, as well.
Both forms of votes are just people using their stake. Why, in your mind, does a person have the "right" to allocate 200 USD worth of STEEM to a post if, at the same time, he doesn't have the right to take away the same amount from another post?
Flagging is one way to dedistribute Steem. It returns the Steem to the pool, which whales receive 99% of rewards from. Including rewards sent back to the pool via flags.
There's a better way.
Back in November @fulltimegeek, @stellbelle, and @aggroed IIRC, made dozens of moderate delegations to minnows of about ~5k to each. @abh12345 tracked what each of the delegates did, and every one of them reduced selfvotes, increased the number of people they upvoted, and increased their engagement in comments. Some more than others.
Prior to that @ned has delegated to ~a dozen delegates ~500k each. Of them all of them selfvoted more, sold votes, and engaged less--except @surpassinggoogle, who is a saint.
I reckon this is an excellent experiment that shows that most everyone is honest and faithful with a little responsibility, but that few are when the temptation is great. I reckon this also explains why the whales exhibit the exact traits the recipients of large delegations did, and seek ROI, rather than act as the white paper expected them too.
The best thing about these moderate delegations, is that the ~10% YOY retention rate is caused by the worsening distribution problem, as Steem is being increasingly concentrated in the accounts of whales, and this discourages people from remaining active on Steemit.
Since broad dispersal of Steem creates folks with Steem to use, it supports the price of Steem. This far more strongly potentiates price increase in Steem, which, since those delegations still belong to the delegators, would be realized in capital gains for the whales.
If Steem goes only to 1% of the price of BTC (and it should, because it's a better crypto, with an actual use case) all those whales would see far higher returns on the holdings as capital gains than they could hope to achieve from mining the rewards pool with bots.
I never addressed the right to flag, or upvote. I don't think I should.
I address the benefits of doing so to the folks using Steemit, and moderate delegations are orders of magnitude better for dispersal of rewards than flags, and far more potential of financial gain for whales than rewards pool mining.
Thanks!