It's a tough situation in that people extracting rewards which don't increase the value of STEEM keeps investors away and keeps the narrative going that Steem is just a scam for scammers. The downvote, in theory, is supposed to prevent that via proof of brain.
If people abuse the downvote and remove potential rewards from those who are contributing content that actually could increase the value of STEEM, then that's certainly a problem. I don't know how much that actually happens (since it would be counter productive to the SP holder to do so), but I do think people take flags and downvotes personally and get very emotionally upset about it (even enough to leave). This, I think, keeps major brands and well-known content producers away. That, to me, is the real problem with the flag/downvote. It creates a negative emotional experience.
If everyone was able to get over their ego and not worry so much about it, maybe it would be okay. :)
Maybe just removing the "click here to show this low rating post" aspect of Steemit.com might help.
This had been my thought as well until becoming a delegator to @freezepeach and following help requests on their Discord channel. There is a consciencous effort by some to flag posts not because of reward disputes or poor content but simply because they disagree with the poster (often from another post entirely).
In the following link everyone who made a comment was flagged as well as the post. You can see that the post has nothing that could upset anyone but a ghoul and you may well recognize many of the commentors as valued Steemian content creators.
https://steemit.com/palnet/@lyndsaybowes/oooooohhhh-pretties
Downvotes should cost more and not less in my opinion. Many are being driven off by these fiends. You know who it is. It is no secret.