If google didn't agree to the ContentID system, Viacom would have most likely been able to strip them of their safe harbor status.

And that means the end of Youtube.

Yeah, something needs to be done, but having humans review takedowns just doesn't work at this scale, and if they aren't extremely over zealous about taking things down, they will be shut down.

Google is under the thumb of Viacom and other big media companies, and there really isn't anything they can do about it except agree or close up shop.

(Mind you, I think that there are definitely ways that Google can improve the situation, and that they should be pressured to do so, but it's not as simple as saying they are "evil")