Without scholarships the comp would be uneven and there would be very little interest. Joeys attract a large proportion of "rugby kids" and as a result the underages are very one-sided. Most years Joeys would rarely drop a game in the 13's to 16s As and B. By opens, most schools have assembled a good 1st XV with "new kids" meaning it an open and interesting comp.
Joeys don't dominate underages because they 'attract a large proportion of "rugby kids"'. They dominate, especially from Bs & Cs downwards (not nearly as much in A teams), due to strength in depth, because it's compulsory for every kid to play sport, and every team right down to the Fs & Gs train at least twice a week with a 3rd afternoon playing internal 'colour' competitions.
This is about emphasis on tradition, culture, coaching and identifying those with the right stuff at an early age, not 'rugby kids'. Any number of Joeys 16A, 2nd & 1st XV players started out in B & C teams in U-13s & 14s where their heart, courage, competitiveness and determination were every bit as important as latent talent. As the old saying goes, it's not the dog in the fight, it's the fight in the dog.
I'll grant you that not every school (possibly not any school) has the same devotion to rugby as Joeys. For some, sport is not compulsory and even where it is, they do not train as often, are not as well coached and this along with less depth will make things uneven especially at B & C level and below. But it is vanishingly rare that just one or two players on inducements - scholarship or otherwise - has turned a mediocre GPS 1st XV into a championship side.
I'd be interested to hear what evidence you'd point to supporting the idea the comp would be uneven without scholarships. As another old truism goes, a champion team will always beat a team of champions, not least as those on scholarships often feel it's their divine right to be in the top team and have an individual rather than collective mindset.
For all that, let me reiterate I have no issue with schools offering a rugby scholarship or two each year especially where those kids are from families which could not otherwise afford to have their talents nurtured as they could be at a GPS school, Kurtley Beale for example (even though his was not a rugby scholarship). My major problem is NRL clubs using GPS schools to develop NRL players. It's my firm belief this is detrimental to the rugby culture of those schools and the future of Australian rugby.