This is the part that confuses me, I guess. The business owner gets the email. It sounds spammy. Maybe they fall for it anyway and receive the article to post. But don't they then realize that it's crappy? It's not as if spammers are logging in to their WordPress account and posting on their behalf. Business owners ultimately have full veto and editing power.

So why don't they cut out the spammy stuff like keyword links? Or, if the content is really garbage, say "no thanks"? The only reason I can see is if they're terribly desperate for content, in which case they're knowingly degrading their own platform.

Have you seen what some less tech-savvy small business owners write themselves as content for their site? Not sure that all of them would recognise exceptionally poor material, especially when they're told by their web developer that it's important to get more content up on their site.

I have to disagree, because I don't see what being tech-savvy has to do with it.

There are therapists, landscapers, used car dealers, craftsmen, accountants, etc. All kinds of people are small business owners and have company blogs. Maybe they fumble around their website, but they can tell when the written content of an article on their topic (landscaping, accounting, etc.) is junk.

The tricky thing about content farms, is that it's sometimes hard for humans to tell the crap content from the real content. There is an entire industry of people who will, for $50, give you 500 words on pretty much any topic that you want, and make it sound reasonable - even sometimes without completely plagiarizing Wikipedia.

Not even necessarily $50. There are fairly competent writers who can do 250-300 words for around $6.

Can they tell if it's good enough based on what they see on other web sites, that may or may not be using outsourced writers, guest posts, etc?

A tech savvy user is more likely to be familiar with the reasons and risks and ignore poorer quality writing in their evaluation.

Will the business owners with small blogs get hit by Google or will those doing the guest blogging (those getting the link) get hit?

Probably neither. Google talks about dodgy practices more than they actually enforce against them. Until they actually state that they are penalizing something, they are probably not penalizing it.