For 40 years, western democracies have been gripped by the doctrine that unalloyed capitalism works. In 2019, the debate has moved on. Capitalism may rule the planet, but it plainly needs fixing. Disaffection is obvious and rising, variously behind the story of riots in Chile or Hong Kong or Britain’s Brexit vote and France’s gilets jaunes.

No economist would now claim, as the Nobel prizewinner Robert Lucas once did, that the central economic problem of depression-prevention is settled: markets are always right. Nor would any central banker now repeat the infamous aphorism of Alan Greenspan, former chair of the US Federal Reserve, that he “had never seen a constructive regulation yet”. The case for austerity, “expansionary fiscal contraction”, as George Osborne dubbed it, is plainly risible.

It is a new world. Book review pages are larded with titles critiquing current capitalism. The evidence of our eyes and daily experience – stagnating real wages, phenomenal inequality, indifferent public services, companies adrift, rampaging private equity, grotesque monopoly, a growth in food banks and rough sleeping – demand change.

The Financial Times knows it can run a full-blooded campaign calling for “Capitalism. Time for a reset”, confident that few in the business world or economics profession will dare challenge the proposition. In August, 181 CEOs of the top US companies signed a declaration: their aim was not only to serve their shareholders by maximising short-term profits, it was “to create value for all their stakeholders” and the betterment of society at large. This is stakeholder capitalism, US-style – with business taking a lead.

In the US, two politicians unambiguously of the left – Elizabeth Warren and Bernie Sanders – are riding this wave and vying for the Democrat presidential nomination. Centrist candidates offering just a touch of the tiller so as not to offend business are dismissed as trimmers before the hurricane.

Warren, champion of vigorous stakeholder capitalism and a recast US social contract, challenges the businesses that signed the declaration to back her, something Sanders, an outright socialist and enemy of business, cannot do. If Warren wins the nomination, she is projected by many pollsters to be able to beat Donald Trump.

It is true that for some years Sanders has won an astonishing degree of support in a US where socialism is seen as the credo of the antichrist. He is the US’s Jeremy Corbyn, a builder of a youthful social movement whose imagination is fired by his sweeping indictment of what unfettered capitalism is doing to US society and his championing of transformative, across-the-board, state-led change. He ran Hillary Clinton close in the Democratic primaries four years ago and, even at 78, just recovering from a minor heart attack, is doing well again.

But not well enough, as Warren is overtaking him. Capitalism certainly needs a reset and its worst proclivities prevented, she argues passionately; but equally, when it works as it can be made to, it is still the most impressive instrument we have to create wealth. “Markets are what make us rich,” she says. “They are what creates opportunity.”

The role of government is not to subsume markets. Rather, it is to set vigorous regulatory frameworks that attack monopoly, promote competition and outlaw noxious practices. It can also empower countervailing forces, notably trade unions and public agencies to support high-risk new technologies and create a social contract that as far as possible takes the sting and risk out of ordinary people’s lives – from healthcare to pensions.

Capitalism needs constant superintendence and if it starts to undermine societal cohesion, it must be stopped at the gate. Warren is today’s embodiment of the great reforming US tradition of the Roosevelts, the Kennedys and Lyndon Johnson.

Her chosen enemies are the hi-tech titans of the west coast, whose monopolistic control needs to be unscrambled and recent takeovers unwound. The tax breaks of the vast private equity industry, slicing and dicing viable companies for extravagant personal gain, need to be withdrawn. And the Wall Street investment banks’ connections with commercial banking need to be ringfenced.

Her aim is to create a new generation of great US stakeholder companies, complete with empowered workforces represented on boards, who would be bound by law to take their responsibilities to consumers, suppliers and the environment fundamentally seriously. She advocates an interlinked series of initiatives to lower and eliminate carbon emissions, in areas ranging from agriculture to transport in support of the Green New Deal.

She will raise taxes on rich individuals and businesses alike. Last week, she proposed doubling her mooted wealth tax and introducing a financial transactions tax to pay for a free-at-the-point-of-use healthcare system. That is on top of proposed tax increases to pay for free college education and universal childcare, and more extensive training. For almost every ill, Warren has a plan. Indeed, the range and details of her plans has become the hallmark for which she is sometimes lampooned. She is, of course, for aggressive gun control laws and against corporate lobbying.

Yet for all her radicalism, she stays connected to the centre, in part because she abjures Sanders-style socialism and in part because the centre itself is moving left. Warren speaks to everyday concerns – dread of mass shootings, fearfulness over student debt, worry over wages and a sense that west coast hi-tech has become a 21st-century Big Brother. She gains more traction by the week.

These concerns are present in Britain too. Wherever Boris Johnson’s Europhobic Tories stand on Europe, voters know they are not the party that recognises the need to address today’s multiple societal grievances. But there are other lessons from the US. For Labour, it is not to go too far in emulating Sanders’s embrace of “transformatory socialism”; for the Lib Dems, it is to make sure they don’t shrink from the same opportunities propelling Warren to the presidency.

British voters, like their US counterparts, may not want a socialist transformation of capitalism, but they certainly want to see it reset and reshaped. This is the moment for bold stakeholder capitalism. It must be seized.

• Will Hutton is an Observer columnist