Liverpool have been unable to agree a contract extension with Sterling and the 20-year-old England international is expected to be targeted by the likes of Chelsea and Manchester City this summer.
Writing in his column for The Telegraph, Neville argues that this represents the latest evidence that Liverpool are a fading force.
“The harsh reality for the club is that this situation has been 15 years in the making,” Neville wrote. “There is a wider context to this story and it centres on how Liverpool have gone from being from one of Europe’s great superpowers to one which is in danger of becoming a provincial club.
“The uncomfortable truth is that this is nothing new for Liverpool. Just look back over the past 10 to 15 years and count the number of players who have left Anfield to pursue bigger and better things elsewhere.
“Steve McManaman, Michael Owen, Javier Mascherano, Xabi Alonso, Fernando Torres and Luis Suarez have all gone.”
Although Neville acknowledges that Liverpool remain alongside Manchester United in terms of global appeal, he feels the club have been responsible for their own decline.
“While United have been happy to shout from the rooftops about how big they are and promote the legend and mythology of the club on a global scale for years, Liverpool seem to have been stuck in their own mud,” Neville added.
“They are years behind the biggest European clubs and, for me, their problems are a direct result of that failure to think beyond the confines of their city.
“Great football clubs like Liverpool will never go away, but they need to find a way to arrest the slide and make themselves a team that players want to play for rather than one they try to leave in search of bigger things elsewhere.
“If Sterling leaves, then that will be another star player who has decided that Liverpool is a club that is unable to match their ambitions.”