As South Korea remains gripped by a gruesome ferry disaster, neighboring North Korea hasn't been lacking in developments.
A new report on North Korea's economy reveals how free-enterprise activities—including the production and distribution of counterfeit goods—are growing and decentralizing beyond the capital city of Pyongyang. President Barack Obama wrapped up his four-country tour of Asia this week. And the U.S. and other allies are considering new sanctions as North Korea threatens nuclear weapons testing. Obama said it may be time to consider sanctions with "even more bite."
But the North's developing economy suggests sanctions intended to isolate the country aren't effective enough—and may be creating an unintended, reverse outcome. North Koreans and Chinese have responded to restrictions with more sophisticated, market-based activities.
State trading firms continue to generate cash. And the regime tolerates open markets throughout the country, where goods and services are traded using the Chinese yuan. Other currencies like the dollar and euro also are circulated.
Sanctions particularly are aimed at muzzling the North Korean elite. But the communist country's 1 percent is far from secluded. People are busy amassing wealth through free-enterprise activities.
"The irony of the markets in North Korea is that a number of those individuals apparently making fortunes, either directly or by accepting bribes, are also senior government leaders and their children," said Bruce Bennett, senior defense analyst at the RAND Corp., a nonprofit research group.
Sanctions, of course, have impeded some market growth. But not enough to force the regime to negotiate and denuclearize. North Korea faces various sanctions from the U.S. and United Nations; and they include an embargo on the import and export of nuclear and missile technology, a ban on all arms exports and unilateral sanctions.
But "North Korea's major trading partner is China, and China has been reluctant to fully impose the sanctions," Bennett said. "Most of the sanctions have thus had only modest effects on North Korea."
Recent months have been relatively quiet after the regime in December executed North Korean leader Kim Jong Un's uncle. The relative, Jang Song Thaek, was a powerful figure. "Jang was like a prince maker," John Park, northeast Asia security specialist at the Harvard Kennedy School, told CNBC.com in December.
"I have seen some reports suggesting that Kim Jong Un's uncle Jang had put away perhaps $1 billion in ill-gotten gains," Bennett said.
And even North Korea's 99 percent, well outside Pyongyang, is dabbling in capitalism.
"What we seem to be seeing is that some of the operators in charge of illicit activities in North Korea are not controlled as tightly as they used to be," said Greg Scarlatoiu, executive director of the Washington, D.C.-based Committee for Human Rights in North Korea.
For example, "drug production and trade used to be the exclusive monopoly of the regime," said Scarlatoiu, who leads the nongovernmental group of foreign policy and human rights experts. "We're finding in recent years that this type of activity has been somewhat diversified and more people are involved."