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Both China and Vietnam, communist countries in the same region as North Korea, allowed a market economy after a while. By contrast, my understanding is that North Korea has dabbled in a market economy a little bit from time to time, but still has very much a communist economy.
Why hasn't North Korea adopted a market economy?
It's important to remember that North Korea is strange even by communist standards. In the Korean War it could be said that the Soviet Union (USSR), People's Republic of China (PRC), and North Korea (DPRK) were more or less a united communist front. But this wasn't to last, and only three years later the PRC and USSR started bickering, eventually becoming feuding rivals during the Sino-Soviet split.
The collapse of communist unity led each communist state down a different path. After Mao's death the PRC under Deng Xiaoping decided upon economic reforms. Deng famously said 'it does not matter what colour the cat is, so long as it catches mice'. This was justified ideologically as a return to Lenin's New Economic Policy, which Stalin (and thus Mao) had rejected, and the USSR continued to reject.
China and the Socialist Republic of Vietnam (SRV) regarded economic reform as essential to political survival. The DPRK however became more and more of a bizarre caricature. While both the USSR and PRC reacted to Stalinist excess and failure by moving away from totalitarianism (Khruschev's De-Stalinisation, Deng's Boluan Fanzheng), the Kim regime went the other way. What had in the USSR and PRC been temporary policies became eternal features: the personality cult, gulags, famines.
Economic reforms like Deng Xiaoping's are unthinkable in the context of dynastic Stalinism, as it would undermine the absolute authority the Kim dynasty has over the lives of North Korean people.
The emphasis of the USSR after Stalin, and the PRC after Mao, was on how socialism could improve people's lives. Which goes some way to explain why Richard Nixon and Nikita Khrushchev had passionate arguments about who made the best domestic appliances. The DPRK has never tried to compete on those terms, and like Stalinism and Maoism is primarily concerned with military matters. Survival, not prosperity, has been the point of the regime, and the ideology has evolved to match this purpose.
Let us think of this question from another angle. After the division of the Korean peninsula at the end of WW2 Kim Il-sung became the supreme leader of North Korea. He is compared to the sun; living gloriously deep in the heart of North Korean people.
After he died, his son, Kim Jong-Il, took his position. Both he and his wife are described as the father and the mother of the country. He can decide anything at will, and every decision was the greatest and most important ever that everyone must follow. You can't see any TV programs except for those which praise his family. Before his death Kim Jong-Il appointed his son Kim Jong-un as commander of the army in order to let his son be the next supreme leader, and then everything went as planned.
People in North Korea can't know anything about the outside world without strict censorship. Almost all media talks about Kim Jong-un's considerable greatness as a 28-year-old young man, his father, and grandfather.
Any economic change must more or less lead to political reform. According to the new constitution, the next leader of North Korea must be a member of the Kim family and forever, people will defend their constitution and glorious leader with their lives.
So just ask yourself, if you were Kim Jong-un and want your son to control the country in the future: will you adopt a market economy like China or Russia? Not unless you are George Washington!
Perhaps the foremost of Kim Jong Il's concerns was to maintain his personal well-being and luxurious lifestyle. That sets him apart from Chinese and Vietnamese leaders, who actually cared at least a little about the well-being of their people.
To maintain his luxurious lifestyle, he had to have absolute control over the country. To open up economically would have been a sure way to lose absolute control. Consider for example Jang Jin-Sung's prediction in September 2014 that North Korea will collapse within five to seven years (source). Quote:
He is of the opinion that the regime will not last because even the children of the current political elite are going their own way, as is witnessed by the fact that many of them are also trading on the black market. ‘The struggle for economic, business and commercial rights will accelerate the downfall of the North Korean regime. Leiden University students will soon be able to teach in North Korea,’ he predicts.
More reading:
2014 CNBC story about the 'black market generation'.
2011 book: Witness to Transformation: Refugee Insights into North Korea.
They are probably thinking very hard about how to do it without them ending up dead (both politicly and literately). They have started the process, partly by looking the other way and ignoring black market dealers and also opening up some zones such as Rason Special Economic Zone and Kaesong Industrial Region
One of the reasons North Korea is so dead set on having nuclear weapons is that it would allow them to use the nuclear deterrent to scale down the conventional weapons. This is necessary since the military is a serious drain on the economy. Freeing up resources would allow space for reforms.
According to Michael Malice, the author of "Dear Reader: The Unauthorized Autobiography of Kim Jong Il", the North Korean brand of Communism puts emphasis on continuity of principles regardless of what circumstances may dictate.
In fact, Malice claims that this lack of change was the foremost promise made by Kim Jong Il when he succeeded his father. While there have been occasional experiments that North Korea made with alternative social arrangements, NK's social order is based on everyone keeping everyone in check and demanding of everyone else a degree of ferver in stamping out any non-Communist influences.
So the leadership of the country can be just as much a hostage of the regime they inherited as they are its keepers.
One of the reasons North Korea continues to have a command economy instead of developing a market economy and becoming state capitalist like China (capitalism requires a market economy by definition, so even if private property was allowed tomorrow in North Korea, it could not be considered capitalist since the state would still have direct control over trade and prices instead of having a market decide such things) is to stay inline with their ideology Juche. Juche is a very "man-centered Socialism" ideology as described by the leaders of North Korea, arguing that historical progress was driven by material forces and 'great men', not people.
The political and ideological might of the motive force of revolution is nothing but the power of single-hearted unity between the leader, the Party, and the masses. In our socialist society, the leader, the Party, and the masses throw in their lot with one another, forming a single socio-political organism. The consolidation of blood relations between the leader, the Party and the masses is guaranteed by the single ideology and united leadership. -Kim Jong-Il
The popular masses are placed in the center of everything, and the leader is the center of the masses. - Kim Jong-Il
A market economy would be a blow against the great man theory espoused by Juche and the idea that a great person (Kim Jong Un, King Jong Il) alone is responsible to the success and failures of the nation. Plus, Juche is an ideology that is supposed to include "autonomy, independence, self-sufficiency for the economy, and self-reliance in defense". You lose some of that autonomy with a market economy even if said market economy is mostly controlled by the state. If you care more about control and making sure your internal economy remains stable than economic growth, then maintaining a command/planned economy beats a market economy any day, which is what the Hermit Kingdom seems to be going for.
I think mostly because introduction of market economy may bring political consequences: collapse of the regime (as happened in the USSR), adsorption of the country by South Korea (as happened in Germany).
The elites do not want to lose power and the people seems to be satisfied by the socialism. Additionally, DPRK did not prohibit people leaving the country for seeking jobs abroad, those who want more capitalism can go to work in Russia or China.
