This is part of the KAIST Terman Report.

Survey Report
on the Establishment of the
Korea Advanced Institute of Science

Donald L. Benedict
KunMo Chung
Franklin A. Long
Thomas L. Martin
Frederick E. Terman, Chairman

Prepared for
US Agency for International Development
December 1970

Chapter 5

Financial Considerations, Including Desirable Foreign Assistance

This chapter gives a brief overview of the financial aspects involved in establishing KAIS as a viable and continuing institution.

General Considerations

It is expected that KAIST will make a direct, tangible and rather early contribution to the Korean economy, including exports. The basic capital cost required to create the institution, and also the normal expenditures for its operation can accordingly be appropriately considered a Korean responsibility. KAIS should be started only if it is expected to create enough wealth to pay for its existence. In this connections, Korean sources of funds include gifts of land, endowment, and equipment from the government, annual government appropriations, support from industry, fees collected for services rendered, and gifts from private individuals.

The principal capital costs of KAIS are associated with land, the academic buildings, faculty and student housing, furnishings and equipment. Operating expenditures consist largely of salaries and fringe benefits of faculty and faculty-support staff, expenses associated with student support, plus expenses associated with operating and maintaining facilities and for providing various services. The operating budget should include an item for travel associated with visits by faculty and students to Korean industrial plants where these visits are part of the formal instruction program.

In planning expenditures, it should be kept in mind that the success of KAIS will be determined primarily by the quality of the faculty and the quality of the students. Adequate space and equipment are also needed, but are not a substitute for quality of people. Mediocre faculty and mediocre students working in magnificent buildings provided with superlative equipment will produce graduates who will make only a mediocre contribution to Korea.

In order to establish a successful and stable KAIS, a reasonable estimate of its operating budget is necessary, and provision must be made for adequate funding of these expenditures. The Survey Team was not in a position to make an independent determination of the operating expenses. However, some preliminary estimates [10] by the Ministry of Science and Technology (MOST) indicate annual operating expenses of the order of $1.5-2.0 million (U.S.). These numbers are also believed to be consistent with the operating experience of KIST.

One of the most imortant principles incorporated in the plans for KAIS is that the operating income is to be derived largely from an endowment fund provided by the government; even the student aid fund should be provided by the endowment. This arrangement will insure stability of funding, a very important feature for an educational institution such as KAIS. Income from yearly appropriations by the government, industrial support, service fees and gifts may be added to the endowment income or used for specified expenditures. During the initial years, income from research contracts, service fees and private donations may not be substantial.

Faculty salaries should be on a liberal scale in order to attract the best people and, equally important, to permit faculty members to devote their full time to KAIS matters only. A salary scale comparable with or better than the KIST scale for professional staff members should be set up. Some key members of the supporting staff (Business Manager, Controller, Director of Construction and Maintenance) should receive compensation comparable to that of faculty members. Faculty members of KAIS will receive attractive housing at the minimum utility charges only. Also, it is recommended that KAIS operate a fleet of cars and buses to provide transportation for its members. These features may be considered as necessary add-on features in the Korean situation.

The salary scale of other supporting staff members can follow the KIST pay scale, which is adequate in Korea. Housing quarters will not be provided for supporting staff members except those designated as key staff members.

All students at KAIS will receive substantial financial aid from the endowment fund. The Survey Team recommends that KAIS set a tuition level that would be appropriate in connection with the industrial support of KAIS students; a figure of $1600 (U.S.) per student per year might be reasonable in this connection. Three different grades of student support are suggested: (1) scholarships to cover tuition and a substantial part of dormitory expense; (2) fellowships that provide tuition and full dormitory expense; (3) teaching and/or research assistantships which pay for tuition and full dormitory expenses plus an allowance.

External (Non-Korean) Inputs

To achieve its potential, KAIS will need some overseas assistance in its initial five years. The needs for foreign exchange are estimated in Table 5-1.

Table 5-1: Estimates Foreign Exchange Requirement
(Mainly Dollars)
5-Year Total

Faculty and program development (also includes operating cost of U.S. Coordinating Office, and cost of temporary faculty consultants from abroad)

1,250 - 1,750

Laboratory equipment (for instruction and research), including initial supplies

2,000 - 2,500

Library Materials

375 - 500

Items for building not available in Korea

375 - 500

Special Items


1,000 - 1,250


In the above tabulation, the total sum is more significant than its distribution between the various line items; the latter is subject to adjustment as alternatives and priorities become more sharply defined.

The foreign exchange required could be in the form of either a grant or a long-term low interest loan. It is important to note that the estimated total in Table 5-1 represents a one-time-only grant or loan, to be spent over a specified period of years. It is required as a getting-started expenditure, not as a continuing subsidy.

The Survey Team believes that it will not be possible for KAIS to carry out its plans successfully unless foreign exchange of the order of magnitude given in Table 5-1 is available. There is not only need for physical things such as laboratory equipment, but even more important is the need for an overseas intellectual component (see Chapter 4) which includes: (1) training of new faculty members and providing mechanisms for giving new faculty members appropriate familiarity with modern industrial practices, (2) the transfer of know-how from an educational system that has a long record of experience in graduate work, and (3) the necessity of providing appropriate visiting faculty during the startup period. While the Republic of Korea could establish an operating KAIS with only its own internal resources, the result would almost certainly be just another educational institution that, while useful, would fail by a substantial margin to make the contribution to the Korean industrial economy and to the Korean educational system contemplated by the KAIS described in this report.

After the initial five-year period, when KAIS is operating in its own quarters with its planned faculty and a full complement of students, the continuing expenses requiring foreign exchange should be small in comparison. They could, if necessary, be handled entirely by Korea, although it is anticipated that some modest help would be available for special purposes from U.S. foundations, industrial concerns, and possibly from the U.S. government.

U.S. Sister Institution and U.S. Coordinating Office

Much of the overseas acctivities would involve U.S. institutions. As indicated in Chapter 4, the common procedure in such cases is to arrange for a U.S. university to act as a "sister institution," that provides the necessary assistance. Examples include the University or Minnesota as the sister institution of the School of Public Admininstration of Seoul National University, and Batelle Memorial Institute's relationship with KIST.

With KAIS, it is believed that the traditional role of such a sister institution needs to be broadened so that instead of providing a majority of the required services through its own resources, the "sister" institution functions as a coordinating agency that would search out and utilize the capabilities of the entire U.S. KAIS is a very special institution; it will accordingly need a far wider range of academic inputs than can be supplied by a single U.S. institution, and in addition will require inputs from American industry.

Thus a new faculty member of KAIS might be trained for "Quality Control by Statistical Methods" at Stanford University, whereas a new faculty member in chemical engineering might be trained at M.I.T. In addition, the Coordinator could arrange for such individuals to make visits, each lasting from a few days to a month or so, to a series of industrial concerns to learn about U.S. industrial practices in their specialties. In many cases, perhaps the majority, these industrial firms would already have working relations with Korean companies or even have operations located in Korea so that these visits could be given a semi-official status.

The recommended arrangement is accordintly that a KAIS Coordinating Office be established at a U.S. "sister" institution that was interested in international affairs, with emphasis on developing countries. This office would be headed by a Director, who should be a mature engineer or scientist of established position, who was knowledgeable regarding the U.S. scene. He would typically devote one-quarter to one-half of his time to KAIS, and would be supported by a full-time assistant who could follow through and implement needed actions. This office would be responsible for the U.S. contribution to Item 1, Table 5-1, as discussed above and also in Chapter 4.

The "sister institution" relationship proposed here differs from customary arrangements of this type in that while the sister institution manages the U.S. relations, its own campus will provide only a small fraction of the total service being rendered. This special role can nevertheless be very rewarding to a U.S. university intersted in underdeveloped countries, since it makes the institution the center of a nation-wide network of relevant and related activities that involve many challenges.

A secondary, but my no means unimportant, value of the proposed U.S. Coordinator arrangement is that it makes the Coordinator and the contacts that he builds up available to assist KAIS on an advisory basis. In this way experienced help and guidance can be obtained on a wide variety of matters, ranging from the physical design of laboratory space to advice on how to go about setting up a closed-circuit television system for serving part-time degree students employed in industry.