It’s a Sunday afternoon, and in a private drawing room at the Lanesborough hotel a sommelier is arranging a couple of bottles of Krug champagne in a silver ice bucket. A side table is heavy with piles of fruit, bottled water, soft drinks and flowers. These could be preparations for an international summit or a board meeting, but it’s all in readiness for the arrival of one man: Shawn Carter, otherwise known as Jay-Z, rapper and self-proclaimed chief executive of hip-hop. Think Jack Welch meets Frank Sinatra and you’ll have an idea of his business acumen, musical reach and style.

While many black American musicians have demonstrated entrepreneurial skill - the soul singer Sam Cooke was one of the first, founding his own label, SAR Records, back in the 1960s - Carter has proved exceptionally astute, both lyrically and financially. So much so, in fact, that in December 2004 he was appointed president and chief executive of Def Jam Recordings, the pre-eminent, Universal-owned hip-hop label, placing him at the pinnacle of his profession.

As head of Def Jam, he earns a reported $8m-$10m a year, with the power to sign or drop artists, according to the dictates of his taste. Carter, who describes himself as a “fair” boss, has control over everything from album production to marketing: “There’s the artist side to me that wants to spend $4m on a video,” he tells me, “and the business side that pulls me back thinking ‘that’s gonna break us’.”

His business interests don’t stop there: Carter also runs his own label, Roc-A-Fella Records, has a clothing line, Rocawear, that grossed over $300m in 2004, part-owns the New Jersey Nets basketball team and has a string of nightclubs. At 36, he is worth a reported $320m (₤170.5m), amassed in little more than 10 years - pretty startling when compared with David Bowie’s estimated net worth of ₤120m or even Sting’s ₤185m. Madonna, who is a decade older than Carter and whose career is into its third decade, is worth a mere ₤248m. Along with fellow rapper Sean “P. Diddy” Combs, Jay-Z is one of the most high-profile of the new breed of hip-hop entrepreneurs: men who have gone from poverty to extreme riches in a very short time.

Carter is in London (with his girlfriend, the singer Beyonce Knowles) on the European leg of his seven-week “Global Express” tour, a kind of comeback. Though his musical and business activities had always gone hand in hand, in December 2004 Carter surprised the hip-hop community by announcing his retirement as an artist to concentrate on his new job at Def Jam. However, this month he returns with a new album, Kingdom Come.

Carter is a curious figure. A former drug dealer from New York, he has a mercurial talent for rhymes (which he never writes down, but carries in his head) - even being described as “America’s urban Shakespeare”. Some of his best linguistic play refers back to events in his own life, with his signature languid delivery making even the most complicated rhymes seem easy. In “Kingdom Come”, the title track from the new album, he makes a neat, knowing nod to his return to rap after life in the Def Jam boardroom, likening the switch to Superman’s telephone-box transformation - “I take off the blazer, loosen up the tie, step inside the booth, Superman is alive.”

As a wordsmith, Jay-Z elicits such high regard that in a Rolling Stone profile published last year, even British novelist Zadie Smith got in on the act, praising his ability to produce “’ecstatic’ hip-hop, the kind of urban-lifestyle fantasies that are so joyful they feel like gospel”. She went on: “But the greater part of him, for me, is his strong streak of Tupac-like truth-telling” - referring to rap’s most famous fallen hero, Tupac Shakur - “[with] raps that aren’t about the dream life of urban African-Americans but concern their real, lived experiences.”

Rapping is a spontaneous form of music-making that shows off lyrical and mental dexterity. Jay-Z is a master. While many rappers labour their rhymes and imagery, he slips effortlessly between metaphors and big ideas, from deeply personal to sharp and witty. What lifts him above the competition is his ability to construct these complex lyrical sequences and then deliver them with a natural cool - like Sinatra - while using his voice almost as an additional instrument.

Today, as befits the head of a multi-million-dollar global empire, Carter is wearing a bottle-green velvet jacket over a white polo shirt, box-fresh sneakers and dark blue jeans - with a green cravat stuffed in the pocket. He is tall - though not as large as photographs might lead you to believe; slim but big-featured, with a gentle manner and an engaging, slow-burn charisma. He’s as far from the stereotypical gangsta rapper as you could get. More Hamptons than Harlem.

“I walk into every room as myself,” Carter explains. “I don’t sit with a guy from the Financial Times and go all serious, and when I go back to the Marcy Projects” - the seriously deprived Brooklyn housing area in which he grew up - “I don’t start saying ‘Yo, yo, word up, yo!’ I’m myself.”

Carter rose to fame with the release of his first album, Reasonable Doubt, in 1996, which featured the late Notorious B.I.G. - aka Christopher “Biggie Smalls” Wallace, a high-school friend and acclaimed rapper - and the singer Mary J. Blige. It was an impressive debut that went platinum. Every autumn for the next eight years a new musical instalment arrived in the Jay-Z story - to date, he’s sold more than 34m albums worldwide. He appeared in Time magazine’s “Most Influential People of 2005” issue alongside Rupert Murdoch, Apple boss Steve Jobs, and WPP founder and chief executive Sir Martin Sorrell. He was the first hip-hop artist to feature on the US news programme 60 Minutes.

Ten years on from his debut, Carter is at the very top of his game. As he - not entirely modestly - points out during his concerts, “only two in heaven can touch me” (a reference to rap’s two dead superstars, Biggie and Tupac).

Born in December 1969, Carter came of age in Reagan-era New York, a place of drugs, violence and black-market money. “There were sub-machineguns on the streets and crack was a powerful force,” he recalls. “I grew up in a time when you could smell crack in the hallways... It wasn’t hidden, it wasn’t this dark thing that kids of nine years old didn’t experience. It was all out front. You could smell it every single day.”

The Carter family - mother Gloria, brother Eric, sisters Michelle, Mickey and Andrea, and young Shawn - lived together in apartment 5C. “You’re in a box and there are people all around you,” he says. “Everyone’s going through struggle - because you wouldn’t be living there if you weren’t. And you have to deal with the stress of everybody’s struggle every single day. It’s not jail. There’s fun and kids playing and basketball games. We had our fun. But every day was filled with tension, similar to jail. You had to navigate your way through the system. I was nine years old when I saw someone get shot for the first time.” His voice cracks - he knew that such a fate awaited him too if he didn’t find a way out. (Indeed, he has been shot at at close range but - miraculously - walked away unscathed.)

Carter graduated to the main profession open to young men in his position: drug dealing. It’s an experience he references in his music: “I used to sell snowflakes by the o-z/I guess even back then you could call me/CEO of the r-o-c” - a line from “Public Service Announcement”, featured on 2003’s The Black Album.

“I’m definitely a different person now,” he says, “but the lessons that I carry from growing up are the things that help a guy like me, who hasn’t graduated from high school, compete with people who’ve been to Wharton Business School and have long resumes. I learnt [about] integrity, sticking by your word and taking chances. You have nothing so your choice is between doing nothing and taking a chance. You take a chance. Growing up, you had to be an entrepreneur. I guess that’s helped me a lot in business because I’ve never been one to think in the box. I’m not institutionalised.”

Memphis Bleek, a one-time Marcy neighbour and protege who is now signed to Carter’s Roc-A-Fella label and raps alongside him on tour, agrees. “Selling drugs was a business. You’re counting money and serving people... it’s just all off the books. That’s what allows a guy like him or me to come from such a situation and know how to run a business. You learnt to manage money. I think anyone who came from that era and that situation has definitely a business mind.”

When hip-hop burst into the mainstream with the 1979 release of the Sugarhill Gang’s “Rapper’s Delight” - which took the disco beats of the 1970s and added the semi-staccato, half-sung, half-spoken lyrics of urban African-American struggle - it was a sound that no one thought would last. Twenty-seven years later it is the voice of a generation, and has evolved into one of the most powerful cultural forces in the world. Visit any village in Africa and you’ll find someone with knowledge of American rap, perhaps even wearing a Tupac T-shirt. The reach of hip-hop is global. And for its home-grown entrepreneurs, that represents yet another opportunity.

When it comes to taking care of business, rappers are savvy. P. Diddy, 50 Cent, Pharrell Williams, OutKast, Eminem and even Jay-Z’s partner Beyonce have all branched out, diversifying their personal brands. No corner of popular culture - from films and fragrances to clothing and clubs - is untouched by the sway, the sheer product-placement power of rap. Artists have become brands in their own right, and their music can often appear as little more than a billboard for their current business interests.

So was Jay-Z’s much publicised retirement simply an inspired piece of brand reinvention? He laughs. “No! For about two years I really believed it.” So why has he come back? “I believe at this point hip-hop needs albums that are events. It needs another [Dr] Dre album, it needs another Eminem album, it needs another Jay-Z album. I just believe that.”

The album will certainly be an event. A couple of weeks after we first meet, Carter’s new single, “Show Me What You Got”, is “leaked”, some suggest on purpose. Within minutes radio stations across the US are playing the tune - some as many as 10 times back-to-back. In the UK, Tim Westwood plays it four times during a two-hour show on Radio 1.

That evening we drive over to Wembley Arena for Carter’s concert. This is the sharp end of the hip-hop business. Kids in Jay-Z T-shirts swarm outside, before surging down the corridors of the arena to find their seats. There’s a fug of expectation, then a crack like thunder as the bass starts up. The stadium erupts with cheers of “Hova! Hova!” - one of Carter’s many nicknames - as he bounds on stage.

Like his Superman alter-ego, he has thrown off the metaphorical business suit and donned the cape of rap. It’s a startling counterpoint to the man I’d met only hours earlier. But towards the end of the set there’s a noticeable spot of cross-brand promotion, as the marketing men might call it. Carter asks for the house lights to be brought up so that he can see his audience. He then systematically surveys the crowd and points out those in Rocawear. The message is obvious: if you want your hero to notice you, come in a piece of his clothing.

Two days later we meet up at Metropolis Studios in west London to hear Jay-Z’s new album at a record-company playback. Right until the last minute it was touch and go whether I’d be allowed to sit in - I’d be the only journalist in the world to hear the album before its November 21 release - but now the rapper’s manner is easy-going and friendly, as he plays some table tennis while waiting for everyone to assemble. This is business and today he’s very much Shawn Carter again. He spins the ball across the table and laughs that crackling laugh.

In the studio, he sips some water and asks everyone to introduce themselves. A&R men, marketing and press are all here. Introductions complete, Carter adds, joking, “And I’m Shawn Carter, from - ping pong!”

Then it’s into marketing. Carter talks about the response to his tour so far and how he’s developed an emotional link with his fans. It’s a fair point. His tour is one of the hottest tickets around, despite the fact that he hasn’t had an album out in two years. “What we need to do is find a way of connecting with people,” he explains.

He pauses again, grins and says, “Anyway, without further ado, here’s my album. I hope you like it.” The air explodes, the giant studio speakers wobble and distort under the bass and Carter sits back, nodding to the beat, occasionally mouthing the lyrics. The likes of Beyonce, super-producer Dr Dre, Coldplay’s Chris Martin, rapper-producer Pharrell Williams and singer NeYo all make contributions to various tracks, along with new signings from Roc-A-Fella.

As the last track ends, the audience is quiet. One of the label people comments later: “What can you say? It’s a new Jay-Z album. It was never going to be bad.”

“No questions?” asks Carter. “What do you think?”

“Was that Chris Martin’s track, the last one?” someone finally asks. The song, “Beach Chair,” begins with a beautiful string harmony, which is crashed by a big bassline before Jay-Z starts rapping. It also features a vocal hook from Martin. It’s a sure-fire hit (and, considering the Coldplay singer’s regular line in ballads, something of a surprise).

Carter is determined the album should offer more than feel-good party tracks, however. “I think politics are what is missing from hip-hop at the moment,” he says. Indeed, the searingly political track “Minority Report” goes someway to addressing this imbalance, with Jay’s voice cracking as he rails against President Bush’s inaction in Katrina-struck New Orleans. Over a sonic background of rain, intercut with news reports, Jay raps about women and children on rooftops, and Bush’s much-derided fly-past in Airforce One. The media also come under scrutiny, as Bush’s attitude is juxtaposed with press attempts to get a better shot of the misery.

“Our whole country is divided,” he tells me later. “But for successful [black] people - including myself - you get a false impression that everything’s okay. I’m over here in London, my picture’s in the paper and you think ‘Wow, look how far we’re going’, but it’s only a few of us.”

Then he’s out of the door, whisked away to his private jet - he’s performing in Dublin in a couple of hours.

The following afternoon I pop into Carter’s dressing room at the Royal Albert Hall, where he is preparing for one of his most ambitious shows yet. He will be the first hip-hop artist to perform here in the venue’s 135-year-history, and the significance of the event is not lost on him. Though friendly, relaxed and welcoming, he’s focused on the evening ahead. We chat about the album playback and then go through into the main hall where guest artists Chris Martin, Gwyneth Paltrow, Beyonce and a 25-piece orchestra are waiting to rehearse.

That evening the show passes off successfully, and the party rolls on to Movida, a chi-chi club in central London. Police have cordoned off the road, and there’s a phalanx of super-cars and a scrum of paparazzi at the kerb. Once inside, Carter comes over to say hello. He’s clearly on a high. “Man! What a show. You enjoy that?” he asks. “It must have been a real champagne moment,” I joke. “Tell me about it,” he says. “You should have been backstage, I had a whole dressing room full of Krug!”

The club is full of fans all following Jay’s lead. Waiters fight their way through the crowds with bottles of champagne held aloft. Around the necks of each bottle are firecrackers, which fizz and spit white light.

The hip-hop lifestyle is often stereotyped as consisting of exactly this sort of conspicuous consumption: champagne and lavish parties. But while the late-night clubbing is perfect tabloid fodder - and indeed the party is reported widely over the following days - there is something bigger going on. It’s all part of maintaining an image that keeps this tangled web of corporate allegiances together.

“It’s easy to say that because Jay-Z is a rapper, music’s the only thing, but it’s more the way he wears his clothes or hat. He’s a fashion icon,” says Steve Stoute, the head of American brand and marketing company Translation. “People intuitively pick up on that. It’s not only his rap or rhymes - that’s just the easiest thing to recognise. There’s a lifestyle, a style and certain mannerisms young adults love to embrace. You’re seeing a transformation right now. The big global brands are figuring out how to use this.”

Translation is the leading player in this lucrative field, with Stoute the main broker between the music community and big business. He has hooked up Justin Timberlake with the “I’m lovin’ it” McDonald’s adverts, Beyonce with Tommy Hilfiger and Jay-Z with computer brand Hewlett-Packard. In the HP television ad, only Jay-Z’s torso and hands are shown as he takes us on a tour of his business portfolio by way of the computer’s software. At the end, the legend “Jay-Z: CEO of Hip-Hop” is flashed up.

“Translation has been well placed as the market leader in the US at taking youth marketing and youth lifestyle and positioning it with Fortune 500 companies to develop really robust marketing plans which speak to young adults,” Stoute explains. “We still have a long way to go though, because brands still think they know best about how to talk to 16-year olds.”

He believes that while hip-hop has always been brand-obsessed (Run DMC had a 1986 hit with “My Adidas” and urged fans to hold up one of their trainers during the song), brands have only recently become interested in hip-hop on a large scale. “You can see what happened with Reebok,” says Stoute. “It was going out of business.” The trainer company signed a deal with Jay-Z - the first ever with a non-athlete. “It became the fastest selling Reebok shoe of all time.”

This symbiotic relationship is not always an easy one, however. Since 2003 the brand-strategy agency Agenda has been running a project called American Brandstand. This surveys the lyrics of the Billboard top 20 song and builds a snapshot of the brands that music loves. Last year, Mercedes-Benz took the top spot, followed by Nike, Cadillac, Bentley, Rolls-Royce, Hennessy, Chevrolet, Louis Vuitton, Cristal and, tellingly, AK-47.

Perhaps one of the most enlightening incidents is the spat that bubbled up this summer between the producers of Cristal champagne and the hip-hop community. The champagne, once made exclusively for Russian tsars in the late 1800s, had of late become the drink of choice for aspiring rappers who wanted to show off their new wealth.

However, earlier this year Frederic Rouzard, managing director of Champagne Louis Roederer, was asked by The Economist if the link with hip-hop was damaging his Cristal brand. “That’s a good question,” he replied, “but what can we do? We can’t forbid people from buying it. I’m sure Dom Perignon or Krug would be delighted to have their business.”

On behalf of hip-hop, Jay-Z took offence, leading a campaign to excise references to the drink from his songs. The video for the “Show Me What You Got” single even includes a scene at a party where he very pointedly sends back a bottle of Cristal, instead opening an attache case to reveal a gold-plated bottle of Armand de Brignac champagne. Needless to say, the chief executive of Armand de Brignac has not made the same mistake as Rouzard. In a statement, Brett Berish, Armand’s president, said: “We’re delighted to have someone of Jay-Z’s stature include Armand de Brignac in the first video for his new album. Jay-Z has always demonstrated the highest standards and finest taste.”

A few days after his Royal Albert Hall show, Carter and Beyonce take a private jet to France, to meet the managing director of Krug. They lunch at the Krug chateau, and take a tour of the vineyards before a tasting. It’s a clear indication that the rap business has woken up to its own power, and now also being taken seriously by established brands that five years ago would have baulked at courting a rapper.

(Radio 4, another synonym for highbrow culture, is also getting in on the Jay-Z franchise, with money guru Alvin Hall quizzing the “president of hip-hop” on December 2.)

The day after this excursion to the Krug chateau, I join Carter in Milan for the final European date of his tour. Backstage at the venue, Jay and his entourage are laughing and drinking champagne - no room is complete without a bottle, I’ve learnt - Dom Perignon, on this occasion. After the concert, shown on MTV Italia, the party ends up at Hollywood, a nightclub in downtown Milan. The place is heaving, the walls practically dripping with condensation. There isn’t a spare inch to move and Carter’s people look momentarily worried before they manage to commandeer some sofas and set up a secure area for their charge.

It’s here that I see Carter for the last time, surrounded by models, pouring glasses of champagne from a jeroboam. He’s very much in his element. Tomorrow he’ll be somewhere else as the tour presses on. Another country, another audience and, of course, another party. All in a day’s work for the chief executive of hip-hop.

HIP-HOP’S HERITAGE

If hip-hop had a birthday, it would be an autumn baby -because it was in October 1979 that “Rapper’s Delight” was released by the Sugarhill Gang. With its infectious beats and stream of nonsense rhymes - “I said a-hip, hop, the hippie, the hippie to the hip hip hop, you don’t stop” - the song named the genre.

Of course, hip-hop did not simply spring ready-formed from the ether. Rap can trace its lineage back through soul, jazz, blues, bebop, work songs and the sing-song delivery of preachers. In the 1970s, dance and disco music overlaid the previous decade’s folk and soul heart. The fierce poetry of the African-American civil rights movement also got into the mix.

The genre grew as a community endeavour, performed in parks and streets - just as had happened during slavery (New Orleans’ Congo Square being a prime example, the only place where slaves were allowed freely to associate, sing, dance and make music). Slipping between the traditions of oral story-telling, spoken word, poetry, spirituals, close-harmony work chants and the improvisational nature of jazz, hip-hop is the culmination of a particularly American experience. And like many American inventions, it has today been commodified, exported and adapted to correspond to local truths on a global scale.