49 care providers and the pharmaceutical industry respectively. But a closer look at the history of health care reform acts reveals that the government is not as helpless as this theory hypothesises. In the past, government was able to accomplish – from the view of the suppliers – uncomfortable SHI-modi? cations, e.g. the introduction of the drug budget in 1993 or the inclusion of patent-protected drugs into the reference-price system in 2004.35 Consequently, one can adhere to the fact that, contrary to the presumptions of the theory of “negotiation democracy”, government is able to implement strong control instruments even against the ambitions of associations and special interest groups. But it must also be recognised that health policy repeatedly had a split personality in the past: in contrast to the of? cial stated goals of cost-containment and contribution rate stability, the same government which introduced reference pricing excluded patented drugs and thus offered health care suppliers the possibility of circumventing price controls. Equally astonishing is that the same government which established the drug budget, counteracted it itself abstaining from claiming regresses in cases where the budget was exceeded, not to mention that this most restrictive control instrument was ? nally abolished. Another example is the non-consideration of a positive list, although this control instrument had been discussed several times. Thus it can be stated that succeeding governments were either unable or unwilling to vigorously pursue the announced goal of cost-containment in the last decades. 3.4. The Perspective of Public Choice The main failure of the theory of “negotiation democracy” is it basically assumes that politicians are really interested in decreasing drug expenditure. An investigation into the self-interests of politicians reveals a different picture: Politicians aspire towards vote maximization. They do not act unsel? shly to satisfy the preferences of people, but they try to attain or stay in power (Downs 1957). Since health politics is always one of the most followed policy ? elds, especially during election campaigns, it is understandable that it plays an important role in election chances. People react highly sensitively to reductions in health care provision or increasing fees. Therefore politicians at least of? cially call for a comprehensive standard bene? t catalogue and contribution rates stability. However, since the concurrent ageing of the population demographics and technological progress cause health care cost escalation,36 another sector which pays is needed. Instead of burdening the electorate, it should be attractive for politicians to cut costs at the expense of the suppliers. But the medical fraternity is especially disposed to having a close relationship to patients and act as 35 A detailed overview of the history of health care reform acts and negotiation democracy is given in Blankart and Wolf (2005). 36 For the interrelation of the ageing demographics, technological progress and increasing health care costs see e.g. Knappe (1995), PROGNOS (1998), Breyer and Ulrich (2000), Hof (2001), Postler (2003). 50 opinion multipliers. Accordingly, burdening physicians could hardly be used as a votes-maximizing strategy. On the contrary, political decisions against the powerful pharmaceutical business companies are very popular. Their bad reputation is based on the perception of electors, who say that many drugs are considered to be useless or even harmful, but are successful in the market because of a huge amount of advertising. High net operating margins, on average in the OECD of 7 %, are ascribed to excessive retail prices (Breyer et al. 2003, p. 422). Moreover, this highly internationalised economic sector is deemed a precursor of globalisation, which is associated with social irresponsibility (the international concentration of the industry, displacement of production locations and the problem of providing cheap medicine in developing countries) by large parts of the population. Even the methods of production and research are caught in the critic’s cross? re due to experiments on animals and environmental pollution. Recently, these reservations have been invigorated by ethical arguments concerning stem-cell research. Thus it can be supposed that savings at the expense of the pharmaceutical industry are more accepted by the public than bene? t cuts or increasing contribution rates. But the pharmaceutical industry is a growth industry which generated a turnover of € 29.4 billion in 2006 with 113,000 often highly-quali? ed employees in Germany (VFA 2007). The pharmaceutical sector is a key industry for economical prosperity. Furthermore it is highly organised with diverse associations and strong political connections.37 Consequently, politicians have to combine two diametrically opposed ambitions: vote-maximizing and economic prosperity. In the following we try to ? nd out how politicians dealt with this dilemma of interests in the past. 3.5. Model Speci? cation and Methodology The purpose of this chapter is to ? nd an explanation for the development of the SHI’s drug expenditure by using an econometric approach and by paying special consideration to political interests.38 To validate our results, we apply two different model speci? cations: an OLS regression in ? rst differences and an ECM. For the following, the variables are presented ? rst because they are identical in both approaches. Subsequently the models’ speci? cations are shown. 3.5.1. The Endogenous Variable We try to explain the SHI’s pharmaceutical expenditure (drug costs which are reimbursed by sickness funds plus insurants’ out-of-pocket payments). To achieve per capita values, we divide total expenditure by the number of insurants. The necessary 37 For further information see Blankart and Wolf (2005). 38 The econometric approach traces back to Breyer and Ulrich (2000).