Danny Welbeck has moved to Premier League rivals Arsenal, but United have splashed the cash by sealing deals for Dutch utility player Daley Blind and Colombia striker Falcao, who has joined on a season-long loan.
United, yet to win in the Premier League under new manager Louis Van Gaal and with no European football at Old Trafford, have spent big in a bid to quickly get back on track following their seventh place finish last season.
Phelan, who was Sir Alex Ferguson's assistant, suggested it showed a lack of faith in United's youth system, renowned in the past for its production line of world- class talent like David Beckham, Ryan Giggs and Paul Scholes.
"Interesting how things have changed at Manchester United now. A good young kid (Welbeck) coming through - part of the academy system - and they've finally decided now that might not be the way to go so they've moved him on," Phelan told BBC Radio 5 Live on Tuesday.
"Obviously there is more and more money now in the game, looking further and further afield for players but probably they have lost the way of Manchester United a little bit in the fact that now rather than produce it may be the case where they're buying in.
"One of the issues of the Premier League at the moment, and with English football at the moment, is getting them on to the football field, promoting them that way and waiting for those opportunities, providing the time and that hasn't happened."
Phelan said United's big spending now reflected a philosophy of wanting instant success under Van Gaal after the former champions stagnated under Ferguson's successor David Moyes.
"It's success now, and not later. In Danny's case. He's had a good run at it, he's come through the system...there's other kids there now in the system who will hopefully get a chance but there's been a lot of cash splashed out in the transfer window and I'm sure that will only get worse."
- Sports & Recreation
- Premier League
- Danny Welbeck
- Louis Van Gaal
- Sir Alex Ferguson
- Manchester United