Bosses who don't allow it usually find themselves with companies that fail. Sure, workers should be productive, but if you as an employer try and make the workplace into something too rigid and constraining, your employees will be demoralized and will not function as well as in a more relaxed enviroment. I know that you might be thinking of a company which is at the other end of the spectrum - where very little work is done, and it's true that that is not a desirable situation. The truth is, though, that the optimum level lies somewhere inbetween.
You have to allow a certain amount of goofing around, you have to arrange company braais (BBQs for you American folks), go-karting, bowling, golf, horse-riding, etc. What you want is for your employees to get along with you and with eachother. If you don't allow that to happen, your employees will either not care about what they are supposed to be doing, or try in vain to do what they are supposed to be doing in an enviroment that they hate. Noone wins.
Now a whole lot of people will say: "But the employer has the power! They can outsource! Your job is not safe! As an employee you have no right to complain!". That's true, to a certain extent. But remember: If an employer was thinking of outsourcing, it probably wouldn't make a difference how well you were or were not performing, the key factor to companies that outsource is saving money and increasing profit margins at all costs. They will learn in time that quality products do make a difference, however, and will be back at square one. I've dealt with outsourcing first hand, and there are pros and cons to it, like with anything. In reality, what most companies will probably end up doing is outsourcing things that make sense to outsource, and bring things that make little sense to outsource back to the physical office. So that "but you'll be outsourced" argument goes out the window.
As for people having no right to complain and being forced to be happy that they have a job at all, this might be true for a lot of people in the current economy, but it still doesn't mean that slave-driving will produce good results. You'll end up with an employee-base that really hates working at the company, and every time you fire someone and get someone new in, the same thing will happen. They will start detesting their working conditions and perhaps even deliberately go on go-slows or worse.
Both employers and employees have to find a balance in the work enviroment. Employees must understand that they can't party at work and goof off for 6 hours a day, and employers must understand that trying to impose draconian rules and policies will not benefit them in the long run.