Google would break if it were transparent. I'm frustrated by the status quo; I run a site where users who found it through search contact me to say that it should've been higher in the search results. I think this would only get worse if it were transparent, though. Gaming Google would become predictable and mechanized. The outcome would be ugly.
Fraud doesn't become legal just because someone has a clever idea for SEO. You're scenario only works in a totally unregulated environment. Internet businesses are not magically except from the types of regulation found in every other industry. The entire point of a regulation is to place limits on behaviors that harm society when left on their own.
However, focusing on my suggestion of transparency and verification misses the point. The method by which Google regains (and maintains) the public trust is their problem, and I'm sure that more than one solution exists.
My point is it would probably be in Google's best interest to fix this problem, because waiting too long has consequences. At some point, the people who feel that are treated unfairly by Google - it doesn't matter if they are correct in that belief - will fight back, which has already started in small, preliminary ways.
> The outcome would be ugly.
The outcome would also be ugly in a future where a socially-necessary service is controlled entirely by a single entity. As usual in these situations, the best situation is somewhere in the middle.
Gaming Google isn't fraudulent. It's just behaviour that lies outside of Google's guidelines about content on the web. There's no law that says you can't create hundreds of websites using spun content and dofollow links to a page you want to promote; it's completely legal behaviour, probably won't trick Google anymore, but used to, and works as a good example of how benefiting from breaking Google's guidelines doesn't imply fraud.
To your broader point, I agree that it's reasonable to want Google regulated to some degree, though I do fear regulators will take on that "transparent algorithm" point of view, which will just make search terrible. Governments generally aren't very good at regulating tech businesses.
