I believe that spanking really hurts self-esteem. It's supposed to. All punishments are. It's less about the physical pain than it is the fact that you know you were wrong. It's supposed to bring down your self-esteem, so you don't think you can do what you're told not to.
There are effective punishments that don't involve anything physical. Such as time-outs.. Agreed. And time-outs should be used - in addition to spanking. There should be a tier of punishments, not just spanking for everything. And spanking should be near the last thing you do, time outs close to the first.
spanking is a healthy form of punishment. Purely using time-outs gets the point across that you don't want them doing what they did, but I don't think it will help much when they get older and a time-out doesn't mean much anymore. It is when they are older that spanking really affects kids, in my opinion, and if you don't implement it from the get-go, you'll have a hard time getting them to cope with it at a later age.
How old were you when your dad spanked you?