Uruguay international Suarez has been linked with a move away from Anfield, with Arsenal having had a bid of £40m and £1 rejected.
But James is convinced Liverpool could secure a top-four finish in the Premier League if Suarez were to leave the club.
"On a purely footballing side of things, as talented an individual as he is, the problem I find is that everything seems to go through Luis Suarez," said the 43-year-old.
"You have this talented player and there is no question about that but does it make the team better?
"I think there is so much hinging on Suarez that it is actually stopping Liverpool from progressing.
"I think the club, in letting him go, can actually then develop a lot more unpredictability about them, in the sense that they will have more options to play.
"(Daniel) Sturridge came in and was their second top goalscorer in half a season and you have Stevie G (Gerrard) there as always bolstering those numbers but there is so much focus on one player.
"Last season Liverpool finished seventh. I think without Suarez, they have a better chance (of finishing top-four)."