The international media loves to describe North Korea as the "world's last Stalinist country", or as a "communist dictatorship". Both descriptions are not completely off the mark, but seriously misleading nonetheless.

It is often overlooked that the last 20 years in North Korea were a time when capitalism (or if one prefers another term, the market economy) took over. In spite of the regime's attempts to keep up communist appearances and heritage from the bygone era, North Korea can for all intents and purposes be described as a market economy - albeit not a very efficient one.

North Korean capitalism was born in the cradle of dramatic social and economic crisis, a period in the early 1990s when Soviet and Chinese aid was suddenly withdrawn. Being deprived of subsidised fuel, electricity and spare parts, the economy collapsed, with many factories coming to a complete halt. Harvests plunged and hence the government soon had no food to feed much of its population. For decades, the average North Korean had subsisted on grain rations given by the state (at a token price). However, from around 1994, these rations ceased to be delivered. The result was a major famine that killed at least 500,000 North Koreans in the years 1996-1999.

Facing the very real possibility of death by starvation, North Koreans reacted in an all too predictable way: They rediscovered the private economy. In the 1960s and 1970s, North Korea was arguably the least capitalistic country on earth. This did not however prevent North Koreans from going to market when a social disaster struck.

In order to survive, people did what they could. Theoretically, private agriculture remained banned and all arable land was the property of state-managed farms, but people in the countryside still began to get involved in private agriculture. In most cases, they developed fields on the steep slopes of mountains. They grew what they could, both for private consumption and sale.

Meanwhile, many industrial workers began to steal equipment from their factories, which they then sold as scrap metal - and this was then smuggled to China. Others began to use unused equipment to make things that they could be sell at market.

Flourishing trade

All kinds of trade predictably flourished, and markets, hitherto very marginal, grew explosively. Meanwhile, smuggling to and from China, as well as legal trade with the giant neighbour, became a profitable activity as well.

From around 2000, other enterprises began to appear as well. More and more people began to start workshops to produce garments, cigarettes, shoes and simple consumption goods. Private restaurants and eateries remained illegal (no private enterprise is supposed to exist in North Korea), but in short order private restaurants squeezed out almost all state-run eateries. The owners usually had to register the restaurants as government property, of course. Private trucks also began to offer their services to merchants who wanted to move merchandise across the country. Private store houses and currency exchange offices began to spring up as well. Even such exotic businesses as salt evaporation fields and paid private libraries have appeared.

By the early 2000s, North Korea had an unofficial, but booming, market economy. To a large extent, the end of the famine in 1999-2000 was made possible by these private economic activities.

By the early 2000s, North Korea had an unofficial, but booming, market economy. To a large extent, the end of the famine in 1999-2000 was made possible by these private economic activities.

According to a 2008 estimate, by that time the average North Korean family drew some 80 percent of its income from the private economy, not from salaries and rations from the state.

However, the North Korean state looked upon these developments with great unease, and never explicitly approved market activities. Between 2004 and 2009, the North Korean government even tried to push the genie back into the bottle by getting rid of the private economy and returning to the old Leninist economic model. These efforts ended in failure, and after 2010, the government decided to leave the economy alone.

However, it still stubbornly refuses to recognise the new economic reality and admit that North Korea nowadays is, to a very large extent, a market-based economy.

As a result, the captains of North Korea's emerging private industry find themselves in a strange legal limbo. An experienced Russian diplomat and life-long North Korea watchers recently expressed the predicament of the new rich in a private conversation with the author as follows: "The North Korean emerging entrepreneurial middle class is doing alright, they have a good life and they enjoy it. The problem is that pretty much every single member of this social group can be arrested, tried and executed according to the letter of the North Korean law."

As one might expect, the growth of capitalism has also brought with it a dramatic increase in material inequality. The richest entrepreneurs now have fortunes counted in many hundreds of thousands of dollars. To cater to this group's increasingly sophisticated tastes, many new restaurants and luxury boutiques (overwhelmingly private) have opened in the last decade or so.

Affluence

Of course, the majority of entrepreneurs are much less affluent, but five-figure sums are considered to be a massive amount of money in North Korea. By international standards this might appear pitiful, but the average official monthly income in North Korea is slightly below $1, while the actual income has been estimated to be around the level of $35-40 per family (both income from informal economy and payments in kind have been taken into account). Against such a backdrop, a businesswoman (less often businessman) with a monthly income of $1,000 is indeed a very affluent person.

Most top entrepreneurs make money in close cooperation with the state, notwithstanding the fact that their businesses are, strictly speaking, illegal and criminal. In recent years, state companies even began to tap the financial resources of the new rich. It is not unusual for a government company, for example, to utilise the resources of a private investor.

For example, a given government foreign trade company may have exclusive rights to harvest pine mushrooms in a given area and then export the mushrooms to China. However, no worker nowadays would be willing to harvest mushrooms for such a company if not paid for what North Koreans find in reliable foreign currency - preferably in Chinese yuan or US dollars. Since the foreign trade company might be short on cash, the managers have been known to ask a private entrepreneur to invest money in the business, the assumption being that the investor pockets a substantial part of the resulting profits. As a result, the line between the state and the private sector has become increasingly blurred.

It is curious, though, why the growth of the private economy has not produced an economic boom, let alone an economic miracle a la China. The main reason seems to be that the state and its officialdom have done their best to impede the growth of this economy; they are attempting to prevent the entrepreneurial class from becoming too powerful. The government makes no secret of its suspicions about private commerce. It is not incidental that the private sector is still never mentioned in the heavily controlled official media - which pretends as if the country is still in the 1980s, a time when all food was produced by state-controlled farms, and all consumer goods were produced by state-owned factories and sold in state-directed distribution sectors.

The official media is of course completely wrong: The country is now a largely dominated by a large class of entrepreneurs and their market place. Its policy may be Stalinist, but its economy is clearly not.

Andrei Lankov is professor of Korean Studies at Kookmin University, Seoul. He is the author of "The Real North Korea: Life and Politics in the Failed Stalinist Utopia".