I think that you teach children respect by showing them respect. Modelling is the most effective form of teaching behaviour.
I also think you can discipline and set appropriate boundaries without physical punishment. I have a three year old who is one of the best behaved toddlers I've ever seen and I don't really punish her. I've never laid a hand on her (and never will), and she's never even been in a timeout.
I'm a big believer in natural consequences (you don't put your sweater on so you don't get to go play outside, you hit me so I'm no longer going to play with you because you're not playing nicely, etc.). I can't really think of any situation as an adult where the natural consequence would be someone spanking or hitting you. Obviously if she's about to jump into the street I'm not going to let her get hit by a car as a natural consequence, there are times when you NEED to step in and scare them a little bit (if you jump into the street you might get hit by a car and get very hurt). But unless it's a safety issue, I kind of let her find out for herself what happens when she doesn't listen or behaves badly. Then she actually understands why she has to/can't do things instead of doing them because she's afraid of me.
My daughter is also very sensitive and likes to be close and touching me, so I think if I touched her in a violent or aggressive way it would affect her very, very negatively. Close contact is how she shows love and feels safe, so to make her fearful of me touching her... I don't know, that just seems incredibly wrong to me.
I was never physically punished as a kid, and I was actually only ever grounded once in my life, and I was a dream child/teenager. Didn't touch alcohol until my 18th birthday, did really well in school, and respected and trusted my parents completely. They always respected and trusted me and so I never wanted to let them down. My grandma raised her kids in a very similar way and her kids (including my mom) are all kind, successful, intelligent adults. So I know it's possible to raise good kids who turn into respectful and respectable adults without physical discipline.
I don't think people who spank are necessarily bad parents, but I think that as more and more research comes out to support that physical punishment is not a terribly effective form of teaching and in many cases actually has a negative effect, people have to start looking for alternatives.