Tell me, how did you get so rich?

As chancellor, Gordon Brown put his trust in tycoons and city chiefs. But as wealth disparities grow

The austere Calvinism of the manse and the multi millionaire lifestyle of the nation's corporate princelings are not obvious bedfellows. Yet among Gordon Brown's first actions on taking over as Prime Minister was to anoint, for the first time, a grand-sounding Business Council for Britain.

This was not all. The old Department of Trade and Industry, with its smokestack heritage, was swept into the sea to be replaced by the freshly minted Department for Business, Enterprise and Regulatory Reform and the former boss of the CBI, the effervescent Sir Digby Jones, was elevated to the Lords as trade minister (despite his flirtations with the Tories and venomous criticism of Brown's pensions and tax policies).

Brown's critics would argue that all of this cosying up to the business and City elites is no more than window dressing as he seeks to shake the socialist tag and demonstrate a willingness to listen to all, even the private equity bigwigs so despised by the unions and the political classes.

The new Prime Minister is more complex than that. As chancellor, Brown made a fetish of abandoning the traditions of white and black tie for the Mansion House dinner, one of the great set pieces of the financial calendar. Yet he assiduously courted many of the same people, passing the "Loving Cup" up and down the lengthy silver-laden tables, for advice on economic and business problems.

Many of Brown's modern Labour predecessors as prime minister, including Tony Blair, had a penchant for self-made businessmen with less than distinguished reputations and a weakness for cutting corners. Harold Wilson formed a close relationship with the flawed raincoat tycoon Joseph Kagan, James Callaghan with the fringe Welsh banker Sir Julian Hodge and Blair with any number of troublesome money men, from Grand Prix magnate Bernie Ecclestone to the governance-lite steel billionaire Lakshmi Mittal. Blair's relationships were too often built around the need for large tranches of cash to fund his election coffers and an unhealthy fascination with great wealth and celebrity.

The current PM's business associates are largely drawn from the elite of thinking financiers and industrialists on both sides of the Atlantic. He sees businessmen as leaders who know how to get things done, not just as cash points, although on occasion that helps. It is no accident he counts among his gurus the most respected banker in the world, former Federal Reserve chairman Alan Greenspan, Bill Gates of Microsoft and, at home, Sir John Rose of Rolls- Royce, whose outspoken views on the nation's lagging engineering skills proved a wake-up call for Brown. The new PM views these bigwigs both as inspirations and a source of great ideas.

It is no secret that in 2001, when Brown sharply lifted resources for the NHS, he searched desperately for a chief executive able to run a vast organisation and transform the culture.

He turned to Sir Terry Leahy, chief executive of Tesco, a lad from the modest council estates of Liverpool who had turned Tesco into Britain's most successful retailer and took a special interest in health because his wife was a medic. Leahy still had much to do on the international front for his employer at that time. But Brown never lost faith in his ability to co-opt Leahy and has added him to his new Business Council.

If the former chancellor wants a job done he automatically turns to the commercial world. His Budget speeches were laced with references to people such as Paul Myners, the former chairman of Marks & Spencer, Sandy Leitch, formerly of Zurich, and his close pal Sir Ronald Cohen, the godfather of private equity in Britain - all of whom have carried out projects on his behalf. Businessmen, with few exceptions such as Lord Young under Margaret Thatcher, rarely make the transition from the boardroom to the cabinet room, with aplomb. So Brown has come up with alternate ways of harnessing their enthusiasm and tapping into their talent pool.

His Business Council for Britain may be something new for a prime minister, but at the Treasury it was part of the furniture. Brown regularly played host to a high-level business advisory group and latterly, as Britain's financial sector picked up momentum - accounting for up to one third of the nation's output - he and his closest associate Ed Balls (now in the cabinet) did the same thing for the City. Balls was so impressed by what he heard that he became almost hyper-active bringing forward new legislation, for instance, to strengthen and protect the UK's City regulator, the Financial Services Authority, in case of an overseas takeover of the London Stock Exchange.

I found myself among those invited along to Brown's high-level business sessions held under strict Chatham House rules. Somehow the chieftains from almost every FTSE-100 company, from bankers to industrialists, found time to respond to the chancellor's embossed invitations and to take part. Brown would lay on all the trappings: a rehearsed order of debate led by himself and fellow cabinet minister Alistair Darling, a cameo appearance from the American treasury secretary Hank Paulson and suffice it to say handsome outside catering with fine wines. Curiously, some of the most powerful figures in business, controlling payrolls encompassing hundreds of thousands of people and corporations that stretched to the far corners of the globe, appeared at times to be reduced to stuttering schoolchildren in the hallowed halls of the Treasury.

The aches and pains of business were laid bare by his guests, from the lack of skills to fears of an implosion at the Doha round of trade talks. Among the serious and enduring issues raised was how the riches of the City were creating a divided nation where the best mathematical brains were drained off to the towers of the Square Mile and Canary Wharf direct from university and how the sheer quantity of wealth created in the City - 4,200 sterling-bonus millionaires in 2006 alone - contributed to a housing market which froze out those working in vital public services.

There is a bravery if not foolhardiness about Brown's adoption of certain business associates. Sir Ronald Cohen may not be in any official post, but he has been the PM's man for all seasons. Founder of Apax - the British private equity powerhouse - he has helped fund Brown's favoured think tank, the Smith Institute, as well as the Portland Trust, the group which paid for much of the work down by Brown advisers Ed Balls and Jon Cunliffe, now at No 10, on using economic muscle to lift the West Bank and Gaza out of poverty.

At home, Brown has asked Cohen to find ways of repatriating the "orphan assets" held by many banks and insurers, money left behind over the generations, and putting them to work on social projects in the inner-city.

The new PM has never wanted to acknowledge that using a tycoon who has accumulated at least £250m of personal wealth and is reported to be non-domiciled for tax purposes, may not play well on the council estates or in the Plc boardroom, where there is huge jealously of such tax privileges.

Perhaps most strange of all was his decision to include Damon Buffini, managing partner of Permira, among his new business advisers. Admittedly, Buffini's personal story is inspirational. A mixed-race child from a single-parent family, he rose to one of the most powerful jobs in the City as head of the private equity arm of the blue-blooded investment bank Schroders.

Pass the parcel

Buffini and Permira have been demonised for their management of the AA, where staff and membership services, including night patrols, were slashed in the name of efficiency.

In the past fortnight, the pass-the-parcel with the AA's assets continued after a merger with Saga in which Buffini and his pals extracted up to £2bn of cash on which they will pay a lower tax rate than the cleaners and gardeners at No 10. He is a choice that looks like political madness.

Certainly, it cocks a snook at the GMB and others who have declared Buffini and his private equity chums public enemy number one, not just for their greed, but for defenestration of pension systems and ruthless job-cutting. Brown's motivations and his slowness in closing down the tax loopholes that have made Mayfair the get-rich capital of the world are hard to fathom. It would be too cynical to think he refuses to confront the tax lacuna for fear of losing party donations.

His reasons are very different. Brown recognises that the greatest force behind Britain's long ten-year run without recession has been the sheer excellence, innovation and openness of British finance. Having created a more liberal tax regime for the super-rich he is unwilling to change it under political pressure and destroy wealth creation. He genuinely believes that there is something to be learned not just from the science of J P Garnier at GlaxoSmithKline but also from the genius of financial innovation. If he can put this to good use in government then so be it.

Brown's value system is so deeply lodged that, unlike some of his Labour predecessors, he has not personally been seduced into thinking he deserves what the captains of industry have, from the private jets to the villas in the Caribbean. But in his embrace of the greed of private equity and mercurial tycoons such as Apprentice star Sir Alan Sugar, he risks undermining his reputation for rectitude.

Alex Brummer is City editor of the Daily Mail. Read his new weekly column on business and economics, entitled "Money", starting next week

This article first appeared in the 09 July 2007 issue of the New Statesman, The new terror

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The secret anti-capitalist history of McDonald’s

As a new film focuses on the real founder of McDonald’s, his grandson reveals the unlikely story behind his family’s long-lost restaurant.

One afternoon in about the year 1988, an 11-year-old boy was eating at McDonald’s with his family in the city of Manchester, New Hampshire. During the meal, he noticed a plaque on the wall bearing a man’s face and declaring him the founder of McDonald’s. These plaques were prevalent in McDonald’s restaurants across the US at the time. The face – gleaming with pride – belonged to Ray Kroc, a businessman and former travelling salesman long hailed as the creator of the fast food franchise.

Flickr/Phillip Pessar

But this wasn’t the man the young boy munching on fries expected to see. That man was in the restaurant alongside him. “I looked at my grandfather and said, ‘But I thought you were the founder?’” he recalls. “And that’s when, in the late Eighties, early Nineties, my grandfather went back on the [McDonald’s] Corporation to set the history straight.”

Jason McDonald French, now a 40-year-old registered nurse with four children, is the grandson of Dick McDonald – the real founder of McDonald’s. When he turned to his grandfather as a confused child all those years ago, he spurred him on to correct decades of misinformation about the mysterious McDonald’s history. A story now being brought to mainstream attention by a new film, The Founder.


Jason McDonald French

“They [McDonald’s Corporation] seemed to forget where the name actually did come from,” says McDonald French, speaking on the phone from his home just outside Springfield, Massachusetts.

His grandfather Dick was one half of the McDonald brothers, an entrepreneurial duo of restaurateurs who started out with a standard drive-in hotdog stand in California, 1937.

Dick's father, an Irish immigrant, worked in a shoe factory in New Hampshire. He and his brother made their success from scratch. They founded a unique burger restaurant in San Bernardino, around 50 miles east of where they had been flogging hotdogs. It would become the first McDonald’s restaurant.

Most takeout restaurants back then were drive-ins, where you would park, order food from your car, and wait for a “carhop” server to bring you your meal on a plate, with cutlery. The McDonald brothers noticed that this was a slow, disorganised process with pointless costly overheads.

So they invented fast food.

***

In 1948, they built what came to be known as the “speedy system” for a fast food kitchen from scratch. Dick was the inventor out of the two brothers - as well as the bespoke kitchen design, he came up with both the iconic giant yellow “M” and its nickname, the “Golden Arches”.

“My grandfather was an innovator, a man ahead of his time,” McDonald French tells me. “For someone who was [only] high school-educated to come up with the ideas and have the foresight to see where the food service business was going, is pretty remarkable.”


The McDonald brothers with a milkshake machine.

McDonald French is still amazed at his grandfather’s contraptions. “He was inventing machines to do this automated system, just off-the-cuff,” he recalls. “They were using heat lamps to keep food warm beforehand, before anyone had ever thought of such a thing. They customised their grills to whip the grease away to cook the burgers more efficiently. It was six-feet-long, which was just unheard of.”

Dick even custom-made ketchup and mustard dispensers – like metal fireplace bellows – to speed up the process of garnishing each burger. The brothers’ system, which also cut out waiting staff and the cost of buying and washing crockery and cutlery, brought customers hamburgers from grill to counter in 30 seconds.


The McDonald brothers as depicted in The Founder. Photo: The Founder

McDonald French recounts a story of the McDonald brothers working late into the night, drafting and redrafting a blueprint for the perfect speedy kitchen in chalk on their tennis court for hours. By 3am, when they finally had it all mapped out, they went to bed – deciding to put it all to paper the next day. The dry, desert climate of San Bernardino meant it hadn’t rained in months.

 “And, of course, it rained that night in San Bernardino – washed it all away. And they had to redo it all over again,” chuckles McDonald French.

In another hiccup when starting out, a swarm of flies attracted by the light descended on an evening event they put on to drum up interest in their restaurant, driving customers away.


An original McDonald's restaurant, as depicted in The Founder. Photo: The Founder

***

These turned out to be the least of their setbacks. As depicted in painful detail in John Lee Hancock’s film, Ray Kroc – then a milkshake machine salesman – took interest in their restaurant after they purchased six of his “multi-mixers”. It was then that the three men drew up a fateful contract. This signed Kroc as the franchising agent for McDonald’s, who was tasked with rolling out other McDonald’s restaurants (the McDonalds already had a handful of restaurants in their franchise). 

Kroc soon became frustrated at having little influence. He was bound by the McDonalds’ inflexibility and stubborn standards (they wouldn’t allow him to cut costs by purchasing powdered milkshake, for example). The film also suggests he was fed up with the lack of money he was making from the deal. In the end, he wriggled his way around the contract by setting up the property company “McDonald’s Corporation” and buying up the land on which the franchises were built.


Ray Kroc, as depicted in The Founder. Photo: The Founder

Kroc ended up buying McDonald’s in 1961, for $2.7m. He gave the brothers $1m each and agreeing to an annual royalty of half a per cent, which the McDonald family says they never received.

“My father told us about the handshake deal [for a stake in the company] and how Kroc had gone back on his word. That was very upsetting to my grandfather, and he never publicly spoke about it,” McDonald French says. “It’s probably billions of dollars. But if my grandfather was never upset about it enough to go after the Corporation, why would we?”

They lost the rights to their own name, and had to rebrand their original restaurant “The Big M”. It was soon put out of business by a McDonald’s that sprang up close by.


An original McDonald restaurant in Arizona. Photo: Flickr/George

Soon after that meal when the 11-year-old Jason saw Kroc smiling down from the plaque for the first time, he learned the true story of what had happened to his grandfather. “It’s upsetting to hear that your family member was kind of duped,” he says. “But my grandfather always had a great respect for the McDonald’s Corporation as a whole. He never badmouthed the Corporation publicly, because he just wasn’t that type of man.”

Today, McDonalds' corporate website acknowledges the McDonalds brothers as the founders of the original restaurant, and credits Kroc with expanding the franchise. The McDonald’s Corporation was not involved with the making of The Founder, which outlines this story. I have contacted it for a response to this story, but it does not wish to comment.

***

Dick McDonald’s principles jar with the modern connotations of McDonald’s – now a garish symbol of global capitalism. The film shows Dick’s attention to the quality of the food, and commitment to ethics. In one scene, he refuses a lucrative deal to advertise Coca Cola in stores. “It’s a concept that goes beyond our core beliefs,” he rants. “It’s distasteful . . . crass commercialism.”

Kroc, enraged, curses going into business with “a beatnik”.


Photo: The Founder

Dick’s grandson agrees that McDonald’s has strayed from his family’s values. He talks of his grandfather’s generosity and desire to share his wealth – the McDonald brothers gave their restaurant to its employees, and when Dick returned to New Hampshire after the sale, he used some of the money to buy new Cadillacs with air conditioning for his old friends back home.

“[McDonald’s] is definitely a symbol of capitalism, and it definitely sometimes has a negative connotation in society,” McDonald French says. “If it was still under what my grandfather had started, I imagine it would be more like In'N'Out Burger [a fast food chain in the US known for its ethical standards] is now, where they pay their employees very well, where they stick to the simple menu and the quality.”

He adds: “I don’t think it would’ve ever blossomed into this, doing salads and everything else. It would’ve stayed simple, had quality products that were great all the time.

“I believe that he [my grandfather] wasn’t too unhappy that he wasn’t involved with it anymore.”


The McDonald’s Museum, Ray Kroc’s first franchised restaurant in the chain. Photo: Wikimedia Commons

Despite his history, Dick still took his children and grandchildren to eat at McDonald’s together – “all the time” – as does Jason McDonald French with his own children now. He’s a cheeseburger enthusiast, while his seven-year-old youngest child loves the chicken nuggets. But there was always a supersize elephant in the room.

“My grandfather never really spoke of Ray Kroc,” he says. “That was always kind of a touchy subject. It wasn’t until years later that my father told us about how Kroc was not a very nice man. And it was the only one time I ever remember my grandfather talking about Kroc, when he said: ‘Boy, that guy really got me.’”

The Founder is in UK cinemas from today.

Anoosh Chakelian is senior writer at the New Statesman.