Mind control only happens if their personalities are erased. It would be punitive.

For example, a guy like Kakashi would probably never betray Konoha, and so he would keep his free will for eternity. A guy like Orochimaru would (hypothetically) have had his mind wiped when he betrayed Konoha and became a missing nin.

Or are you complaining that this is a stratified social structure, with a Kage at the top? Defining utopia seems somewhat beyond the scope of this discussion.