meanwhile US capitalists and govt headed over a cliff with tax cuts and outsourcing of jobs:
'Capitalism is under serious threat'
Mr Rajan told BBC Radio 4's Today Programme "when that happens, the many revolt against capitalism".
He said governments cannot afford to ignore social inequality when considering the economy.
Mr Rajan led India's central bank and was also a former chief economist at the International Monetary Fund (IMF).
He has been tipped by some as a possible successor to take over from Mark Carney as governor of the Bank of England.
"I think
capitalism is under serious threat because it's stopped providing for the many, and when that happens, the many revolt against capitalism," he told the BBC.
Mr Rajan said it was possible in the past to obtain a middle class job with "modest education".
But the landscape has changed in the wake of the 2008 global financial crisis and the resulting austerity.