The club's former midfielder says top stars now play for Chelsea, Man City and Arsenal and says the Red Devils need to think about what direction the club is going in
United's season went from bad to worse on Thursday, beaten 2-1 at Midtjylland in the first leg of their Europa League last-32 tie.
Van Gaal's side slumped to an 11th defeat of the campaign in all competitions, further increasing the pressure on the Dutchman.
However, Hargreaves insists it is the club's player recruitment and not Van Gaal that should be questioned.
"I don't think Manchester United will make a change but first of all it is David Moyes' fault, then it was Louis van Gaal's fault," Hargreaves told BT Sport.
"At what point does the club take some responsibility for the way they've recruited players.
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"The best players don't play for Manchester United anymore right now. Some of the best individual players, they're going to Manchester City, they're at Chelsea, they're at Arsenal.
"Manchester United need to look at themselves and say, 'what is our direction? How do we want to play? What is our philosophy again?'
"Then they need to start recruiting players to play in that fashion. I think right now in terms of Manchester United being fifth in the Premier league, they play like they're fifth.
"I don't think they're a team that can compete to win the league, I don't even think Manchester United fans believe they can win the league or the Champions League and they need to take a step in the right direction but I think right now they are where they are for a reason."