Later today the World Bank will be hosting an online discussion on a topic of great importance in the Middle East which rarely attracts enough attention: crony capitalism.

The problem began in the 1970s and 1980s when Arab states started to liberalise their economies and open them up to the private sector. But, as a blog on the World Bank website explains, this was not what it seemed:

"To stay in control, autocratic rulers relied on loyal private entrepreneurs who would do their bidding – what we now call crony capitalists.

"Cronies grew fast and took over the liberalised markets all over the region, especially in the late 1990s and 2000s. But they were not particularly efficient. And they stifled competition and innovation, allowing unfettered competition to flourish only in informal markets where authority could not penetrate ...

"This regime did not deliver the jobs needed by the increasingly educated and larger waves of entrants in the labour market. Moreover, it generated rising inequalities, increased the grievances of the poor that could not advance socially, and exacerbated frustration among the educated youth with high expectations for a better future."

Although the public in Arab countries are vaguely aware of what has happened and often know the names of the cronies who are raking-in the money, detailed information about how it works and what effect it has is hard to come by. Usually, we have to wait until a regime falls for the picture to become clearer.

One thing we now know from Egypt, for instance, is that during the last year of Mubarak's rule regime-linked businesses made disproportionately high profits while employing disproportionately low numbers of people. The Economist reports:

"Among Egypt's medium-sized and large firms, the politically connected ones made 60% of all the profits in 2010. Yet their share of the economy was far smaller and they provided only 11% of private-sector employment.

"Politically connected firms seemed remarkably lucky in having non-tariff trade barriers to protect them. Some 71% of politically connected firms operated in markets protected by at least three such import barriers; only 4% of unconnected firms were as well cushioned. 

"Generous energy subsidies were a favourite way for the government to help its friends: 45% of politically connected firms operated in energy-intensive industries, compared with only 8% of firms as a whole."

Although fuel subsidies are usually viewed as benefiting the less well off (cheap cooking gas, fuel for taxis and pick-up trucks) and are popular with the public for that reason, those in a privileged position can benefit from them even more. In Yemen, for example, businessmen were able to buy subsidised fuel and then export it to other countries at a profit.

In Tunisia, the fall of the Ben Ali regime shed new light on its business activities, which were examined by the World Bank in 
a report earlier this year:

"In the aftermath of the Tunisian revolution, assets of the Ben Ali clan were confiscated. The confiscation process, ordained by the new government ... involved 114 individuals, including Ben Ali himself, his relatives and his in-laws, and concerned the period from 1987 until the outbreak of the revolution. 

"The seized assets included some 550 properties, 48 boats and yachts, 40 stock portfolios, 367 bank accounts, and approximately 400 enterprises (not all of which operate in Tunisia). The confiscation commission estimates that the total value of these assets combined is approximately $13 billion, or more than one-quarter of Tunisian GDP in 2011."

The list of businesses included such firms as Orange Tunisia, Tunisiana, Carthage Cement, ENAKL auto-industries, and the International School of Carthage.

As with the regime-related businesses in Egypt, a particular feature of the "Ben Ali firms" in Tunisia was high profits and low levels of employment. They accounted for more than 20% of all net profits in the private sector but produced only 3.2% of all private sector output and accounted for less than 1% of all wage jobs.

They were able to achieve this, the report says, because the regime manipulated business regulations in their favour.

One aspect was the use of a law supposedly designed to encourage investment which restricted business activity in certain sectors. Businesses involved in fishing, tourism (travel agencies), air transport, maritime transport and road transport, telecommunications, education, the film industry, real estate, marketing, and health-related industries all required government permission in order to operate legally.

This, as the report points out, could be "abused to create market power and stifle competition, both from prospective entrants and incumbents":

"Anecdotal evidence suggests this happened in the case of the closing of the Bouebdelli School, a highly respected private school from which many of Tunisia’s elite have graduated. This school was perceived to be in direct competition with the International School of Carthage, which was founded by Ben Ali’s second wife, Leila Ben Ali. In spite of widespread public protests, the Minister of Education ordered the school to close for failure to comply with registration regulations."

Restrictions on foreign investment could also be used to shield regime-related firms from competition or to direct foreign investment towarsd such firms:

"McDonald’s failed entry into the Tunisian food market is often used to illustrate the Ben Ali family’s hold on specific sectors. McDonald’s exclusion from the Tunisian market followed from their unwillingness to grant the sole licence to a franchisee with family connections. The government of Tunisia in turn refused to grant authorisation to invest."

During Ben Ali's rule, the list of restricted business activities was amended 22 times by presidential decree – meaning that they were changed on the personal authority of Ben Ali himself. The report gives a couple of examples of how this operated, to the benefit of his family:

"Décret n° 96-1234 issued in 1996 amended the investment code by introducing authorisation requirements for firms engaging in the handling and transfer of goods in ports, and the towing and rescue of ships. The decree also introduced restrictions on [foreign direct investment] for firms involved in the transport of red meat. 

"That same year, Med Afif Chiboub, uncle of Ben Ali’s son-in-law Mohammed Slim Chiboub, established 'La Mediterraneene pour le Commerce, le Transport et la Consignation' a shipping and logistics company focused on the transport of refrigerated products. 

"As another example, the establishment of 'Carthage Cement' by Belhassen Trabelsi, the brother of the president’s second wife, followed on the heels of Décret n° 2007-2311 stipulating the need for government authorisation for firms producing cement."

Not surprisingly, the report found a correlation between the business sectors that were restricted by the regime and those where regime-related businesses were active. Sixty-four per cent of Ben Ali firms operated in sectors that were subject to government authorisation and 64% in sectors where foreign direct investment was restricted. For non-Ben-Ali firms the comparable numbers were 45% and 36%, respectively.