flagging is basically downvoting - they are different words for the same thing in the steemit world.
flagging is intended to be a mechanism for removing abusive, spammy posts from the system - once a post goes into negative payout it becomes hidden in the site. it can still be unhidden so it is not completely censored, but it will be less obvious than other posts.
flagging also lowers the reputation of the person being flagged and removes their payout - but it is all relative to the reputation and steem power of the person doing the flagging. a user with lower reputation can flag someone with a higher reputation but it will not effect the reputation of the one being flagged at all. the idea is that respected members of the community (based on their ability to gain reputation and upvotes) will have the ability to quieten people who go against the will of the community - although there is no way to completely remove or completely silence anyone under any circumstances (afaik).
ultimately the centralisation of power is a problem that is a reflection of the entire concept of money itself and the capitalist ideology of imbalance that our societies are structured with.. so it's no surprise that a social network based on similar mechanisms will have similar problems. if you read the whitepaper you will see there is built-in allowance for redistribution of wealth here.
i have never bought any steem with money and everything i have had from this site has been a result of my own effort to provide value here - you can either provide value in terms of posts, services or in terms of financial 'stake'.
I don't have any problem with capitalistic ideology as long as the right people are being rewarded with the end result being "the best" content. A capitalistic ideology is necessary to incentivize people to compete and produce "the best they can." Unless you're saying that 2 writers who work equally hard yet one is popular because his/her blogs are original/engaging and the other isn't because his blogs are uninteresting/ unoriginal - should those 2 writers should be rewarded equally or similarly? N-O. Because when you reward shoddy content at the same or similar rate as stellar content, you kill the incentives for people to work harder and produce. Why would I work my butt off to create a masterpiece when other blokes are being equally rewarded for unoriginal or inferior content? I'll just work as hard as the common denominator, now all the content sucks. Granted, I'm using an extreme example here but at its root, I'm describing a socialist ideology. Capitalism is not perfect and it can spin out of control, but at ITS root it fuels competition. With Steemit, being in a creative space that is competing with "the best" - Reddit, Medium, Twitter - top talent will be needed to grow and sustain.
I disagree with that. When you are doing what you are truly passionate about, you will do exactly what feels good to you and just because you enjoy doing it. That is the balanced way that has been mostly lost on Earth while so many strive to 'be the best' in a subjective arena which typically lacks the loving bond that society needs to both be optimal and peaceful. The idea that capitalism is the only way that people will create things is not really one that is supported by the lived experience by the most creative people - it is more of an idea perpetuated by those who are less creative and who seek to exploit creativity in others.
I prefer to fuel co-operation than competition and I prefer peace than conflict.