I think a lot of the issues, complaints, and objections raised here regarding child black belts are directly related to the issue of martial arts as business. Many of the same complaints are applicable to lousy adult black belts as well, but with the children there is an age and maturity issue that compounds the problem.
When martial arts are a business, then decisions are made as a business. All decisions revolve around keeping the business profitable and are made with that goal in mind. How is the business profitable? by keeping students paying fees and buying merchandise.
So how do you keep students paying fees and coming back? you give lots of promotions, even when they aren't warranted. To the students who don't know better, this makes them feel good about themselves and gives them a certain amount of bragging rights. And it keeps money flowing into the school.
When you run a business and it grows large enough that you can't do it all yourself, you need to hire some help. So some of your students become instructors. Maybe they aren't really ready yet, but the business needs them so you give them another promotion and then you have a crew of 20-year-old instructors teaching all the kids. But these instructors are young and inexperienced about life, even if they have some martial skills. They just aren't mature enough to be a good instructor yet. Now these instructors need to teach according to the business plan, which mandates frequent promotions for all, so it becomes a downward spiral and perpetuates a bad situation.
Because these instructors are young and came up thru the ranks under your instruction, and you can sell them on the "growth" they will undergo by being instructors, you can get away with paying them poorly to do all the teaching, while you focus more on the business and figure out how to bring in more money.
Personally, I think it is unfortunate that people turn martial arts into a business designed to be their primary source of income. When it becomes this kind of business, then all activities will be dictated by the business plan.
When instructors have a day job that isn't martial arts, and they just teach martial arts on the side out of love for the art, and any business side of the teaching is designed to primarily cover the costs of training and teaching, and monetary profits are not the primary focus, then the instructor can escape these heavy business priorities. Without the business obligations, an instructor can just teach the best quality that he can, and give promotions when he really feels they are warranted, regardless of the age of the student. A real relationship develops between teacher and student, and the student grows much more fully and the quality of the arts stays higher. Then we don't have adult black belts who are lousy, nor do we have 8-year-old 4th Dans.