The shabiha have been blamed for the massacre in Houla, but who is their paymaster, and who gives them orders?

"Women, children and old men were shot dead," Syria's foreign ministry spokesman, Jihad Makdissi, told reporters this week. "This is not the response of the heroic Syrian army."

Then who did kill 108 people in Houla, including 49 children, in cold blood? The answer appears to lie with the armed civilian militias from nearby Alawite villages, who are known to Syrians as shabiha, from the Arabic word for ghosts.

The term initially referred to shadowy gangs of smugglers who grew up around the coastal city of Latakia in the 1970s, and whose immunity from law seemed to come from their tribal and village connections to the ruling Assad family.

These early shabiha thrived under the wary eye of President Hafez al-Assad, Bashar's father, and for good reason. In 1980s, with Syrian troops occupying Lebanon and its economy crippled by goods shortages, smuggling goods across the Lebanese border became one of the best ways for well-connected Syrians to make money.

One result of this illicit economy was a reserve army of loosely employed, poor young men from the Alawite offshoot of Shia Islam that has proved very useful to a regime that has made paranoia about enemies, real and imagined, the cornerstone of its survival.

In the poor area of Mazzeh, west Damascus, groups of young, largely Alawite men live in accommodation built for them by Hafez al-Assad in the 1980s. The area is known as Mazzeh 86, after the year they arrived from the countryside on the promise of cheap food and subsidised accommodation.

As the uprising ignited in March 2011, the ranks of these so-called shabiha swelled, and they began to repay their debt to the regime by doing much of the heavy lifting work of suppressing dissent.

When about 20,000 people turned up for an impromptu opposition funeral rally in Mazzeh in February this year, for example, it was the shabiha who, according to demonstrators interviewed by the Guardian in Damascus, fired on the protesters.

Whenever the opposition have attempted any kind of funeral or rally in the capital, large lines of plain-clothed or khaki-clad men and boys armed with submachine guns appear in nearby streets awaiting an excuse to intervene.

But it was amid the chaos and sectarian tensions of revolutionary Homs that the shabiha really came into their thuggish own. Mohammed, a veteran and respected moderate opposition activist in the city whom the Guardian met in February, said the shabiha in Homs accompany the Syrian army on raids and at checkpoints, but appear to have their own leadership and command structure – and take orders from unknown officials elsewhere.

When soldiers storm a rebel area or move in to search it, the shabiha arrive with them, sometimes on buses, to terrorise and steal from the local, largely Sunni population.

"They dress in black, or alike in army khakis, but wear a yellow ribbon on their shoulder," Mohammed told the Guardian on Monday. On 13 May, according to Mohammed, the shabiha moved into his area of al-Shammas, formerly a relatively peaceable Homs neighbourhood, and perpetrated a massacre there; he doesn't know how many were killed.

As their numbers have grown and hundreds of thousands of Homs residents have fled the city, the growing ranks of shabiha have moved in to colonise whole neighbourhoods and steal goods and furniture from empty houses. "They're vultures," said Mohammed. "They leave nothing behind."

Another activist, Abu Rami, speaking from the Bab al-Sebaa area amid audible sniper fire on Monday, said the shabiha are largely drawn from Alawites from Homs and the villages around it. Often they work independently, either in gangs or as snipers on rooftops overlooking rebel areas.

About 90% of the thousands of shabiha in Homs, he estimates, are poor Alawite Muslims from Homs and the surrounding areas, and the result has been to aggravate existing tensions between Sunnis and Alawites in the city.

It's a risky business. The Free Syrian Army has killed many of these shabiha, he said, but many more are queueing up to take their place. With the economy reeling, many poor Alawites need the money; others will have been persuaded by the regime's argument that their country faces a conspiracy mounted by al-Qaida, the Gulf states and Nato, and the inevitable result will be a merciless, Sunni-led pogrom of revenge against their community.

But who is the paymaster, and who gives the orders? The answer lies in the country's recent history and its half-baked attempts at economic renewal.

As Syria retreated from Lebanon in 2005 and warmed to the west, it lumbered towards a dysfunctional kind of market economy. The result was to hand power to a new kind of businessman, usually Sunni, who managed to forge links with the Alawite-dominated clique that controls the tentacles of Syria's security state.

As profit moved away from smuggling and towards more legitimate business interests, a small core of well-connected operators grabbed control of industries, equipment, franchises and car dealerships – one of the central complaints of ordinary Syrians as the uprising has gathered momentum in the last year.

It's these same businessmen, many of them Sunni and not Alawite, who are now quietly passing money to the shabiha, mainly to protect their lucrative business privileges, but also to keep their political sponsors happy.

The shabiha owe everything to the regime, grumble the Damascus opposition, and they will do anything to protect it. In February, one Damascus-based activist told the Guardian he knew through friends that shabiha were being paid 1,500 Syrian pounds (£15) a day, and were getting so much work they looked tired all the time. Another activist, possibly exaggerating, estimated their day rate at between 2,500 to 5,000 Syrian pounds. But the state is not is paying for all this.

Abu Rami named two mid-level businessmen, one an Alawite living in the al-Qosair area of Homs, the other a Sunni living in Damascus, who he believes sponsor all the work of the shabiha in Homs. They work in conjunction with the head of security intelligence in the city, he said, who hires out his own men as shabiha or procures unemployed locals for the job.

None of this information is possible to verify, and Syrians are convinced that every successful businessman must somehow have sold his soul to the regime.

But not without reason. From the president's maternal cousin Rami Makhlouf downwards, the commanding heights of the Syrian economy are a series of protected fiefdoms controlled by those around the Assad clan and their trusted partners.

Some blue-chip firms in the west, which have been doing business in Assad's "modernising" Syria over the past decade, should also be getting nervous. In August last year one Damascus opposition activist presented a Guardian journalist with a list of the main business benefactors of the shabiha, put together on the basis of confidential conversations with Damascus businessmen. On it were men who had earned their money as exclusive agents, dealers or franchise holders of named blue-chip British, Japanese, German car companies. It is some of these profits that are being ploughed back into Syria's unofficial, paramilitary killing machine.

As the body count in Syria rises, the regime seems to be moving towards presenting itself as an honest broker, working hard to protect Syria's fragile sectarian mosaic and to keep different groups of "armed gangs" from one another's throats.

The idea is not entirely novel. It was during a previous, largely sectarian campaign of assassination against the regime led by the Sunni Muslim Brotherhood between 1979 and 1982 that it had the idea of armed civilian militias the last line of defence.

But in those days, civilian militias could be drawn from the ranks of the ruling Ba'ath party. That they no longer can be tells a story about the utter atrophy of the party, which the Assad family used as a vehicle to win power, and its replacement by a network of family relationships, business interests and hired hands.

Peter Kellier is a pseudonym for a journalist who has worked in Syria.