To be honest, like all very large organisations, I suspect there are many different points of view within Google. For example, Google is slowly working on End-to-End [1].
People tend to expect that businesses run to the lowest common denominator: if it is profitable, then they will do it. This is demonstrably false, though. Most companies avoid the most egregious crimes in our society, and others actually take moral stands on various issues (Lush comes to mind [2]). But of course, no matter what, it's always going to be a nuanced issue (see the comments in the second link to see some people's negative reactions).
Somewhat like Lush, Google has potential to improve the situation and position itself as "the least bad" option. The reality of the situation is that while privacy is very important, almost nobody wants to be completely private. They want to advertise things about themselves -- even to the whole world (see Facebook). Possibly they even want to lie about themselves, but this is still compatible with selling them things to help them sustain their fantasy.
From the perspective of targeting ads, it seems to me to be much more effective to target the "public persona" that people wish others to see rather than the true private person. Building better tools that allow someone to say, "This is how I wish the world to see me" is much, much better than trolling through their personal information and patching up a profile that nobody wishes to expose. And for the few people who wish to be an informational black hole? You weren't going to sell them anything anyway.
P.S. I understand that Google and others have a very long way to go to make this kind of thing a reality. It's just that I don't see it as being antithetical to their business goals.
